(News Bulletin 247) – The Stifel bank went from “hold” to “buy” on the value this Monday, highlighting its attractive risk-return profile with a significant expansion of its margins to come in the coming years.

Towards the end of the tunnel… Introduced on the Paris Stock Exchange at the end of 2021 at a price of 18.5 euros per share, the specialist in dematerialized computing (“cloud”) is now trading almost twice as low, at a just under 10 euros. Rising electricity costs in an energy-intensive industry, fears about the economic situation and even sales of shares by its historic shareholders KKR and TowerBrook Capital are all elements which have weighed down the stock in just over two years. years.

However, OVHcloud is perhaps at the dawn of a new stock market era. Its stock has gained 15.5% since the start of 2024, three times more than the SBF 120.

The group notably succeeded in its grand oral on January 17, when it presented its strategic plan “Shaping the future”, promising in particular to generate a positive free cash flow on the financial year ending at the end of August 2026.

Stifel in any case appears convinced. The bank went back from “hold” to “buy” on the value this Monday, while increasing its price target to 11.5 euros compared to 7 euros previously. Which also allows OVHcloud to climb by more than 5% this Monday around 10:30 a.m.

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Good dynamic results

The bank highlights an attractive “return-risk” couple on the stock. “The current valuation offers revaluation potential thanks to the dynamics of future profits and expectations are so low that the downside risk seems limited,” argues the research office. In the short term, Stifel expects the company to publish good half-year results on April 23.

It expects gross operating income (Ebitda) to increase by 18% over one year and a decrease in cash disbursement. The group will be partly helped by a more favorable basis of comparison.

“We believe that the company’s next publication of results is likely to trigger a re-rating (appreciation of stock market multiples, Editor’s note),” considers the bank.

Stifel especially invites us to plan for the future, judging that the day dedicated to the group’s investors on January 17 greatly improved visibility on the expansion of the operating margin and free cash flow over the next three years.

An operating margin of 12% in four years

The establishment estimates that OVHcloud could achieve an operating profit of 200 million euros within four years, a figure to be compared to an operational loss of 12 million euros for the last financial year published.

“Free cash flow generation is the group’s new priority as it emerges from a long investment period during which many data centers were built, leading to sub-optimal capacity utilization” , also highlights Stifel.

By integrating a better capacity utilization rate of the group’s data centers as well as strong growth in new products launched by OVHcloud, the bank considers that the group should be able to generate an operating margin of around 12% by the next four years. “We believe that such a target is not too demanding since it only requires control of investment spending,” explains Stifel.

The design office also takes advantage of the note to praise the work carried out by the founder of OVHcloud, Octave Klaba, since the creation of the group in 1999.

The manager has led the company to achieve “profitable growth since 2016” and OVHcloud has only raised equity twice, in 2016 and in 2021 (during its IPO).

“In other words, since the creation of OVH Groupe in 1999 until 2016, Octave Klaba managed to develop his company without any capital increase, which suggests, in our opinion, that the fundamental business model of OVH generates a historically sufficient amount of free cash flow and operating profits to be self-financing”, underlines Stifel.