(News Bulletin 247) – The Canadian bank has initiated its “outperformance” coverage on the company specializing in community services, highlighting its cost performance but also its technological advances.

Born on February 1, 2022 from the acquisition of the majority of Suez’s international activities, the “new Veolia” seems to have it in its stomach. At least from the point of view of analysts, the majority are buying the file (13 out of 16, according to investing.com). Because the price has fallen by around 7.7% since the creation of this “new Veolia”, which marked the epilogue of a tough standoff with the management of Suez.

Can the former Compagnie Générale des Eaux turn things around? Royal Bank of Canada in any case believes in the potential of the company specializing in community services. The Canadian bank initiated its coverage on Veolia this Monday at “outperform” with a price target of 37 euros, which gives the stock a potential of around 25% at Friday’s closing price.

On the Paris Stock Exchange, Veolia shares are gaining some ground, gaining 1.5% at the start of the afternoon.

Costs in DNA

Royal Bank of Canada highlights the cost efficiency gains the company makes each year, expecting more than €350 million in savings per year until 2027. The bank cites Estelle Brachlianoff, the managing director of Veolia, which states that “cost reductions are our DNA”.

Royal Bank of Canada estimates that all of Veolia’s efforts on costs should enable the gross operating margin (Ebitda) to increase by 170 basis points, or 1.7 percentage points, by 2027. Which would fuel an increase in earnings per share of 12% on average per year over the period 2024-2027.

Veolia’s cost reductions “remain essential to the business model, with Veolia sharing the long-term efficiency savings with its customers (the retention rate of gains made by Veolia is 30% to 50%). Veolia sells “so “efficiency” and not “cost-cutting”. This is a key element of the service offered by Veolia to its customers, which implicitly determines the pricing power and renewal rates”, explains Royal Bank of Canada.

The bank calculates that cost savings (also including the synergies achieved as part of the acquisition of Suez activities) will represent 43% of Ebitda growth by 2027 (with a target of more than 8 billion euros of this indicator by this horizon).

This cost advantage is quite regularly highlighted by design offices. This is the least of the company’s technological advantages.

Eliminate “eternal pollutants”

Royal Bank of Canada explains that Veolia intends to generate 70% of its growth by 2027 from 30% of its most promising businesses, namely the treatment of hazardous waste, energy services and advanced equipment for the treatment of waste. water (“water technologies and solutions”). What Royal Bank of Canada describes as “boosters”.

To accelerate its growth in these critical technologies, Veolia can count on the effectiveness of its R&D, judges Royal Bank of Canada, with 4,400 patents filed and 550 proprietary technologies. “These include unique technologies such as water filtration membranes and solutions for the elimination of PFAS (“the eternal pollutants”),” says Royal Bank of Canada.

The bank judges that these technological assets are “underestimated in these technically demanding sub-sectors and that they remain essential to outperform smaller competitors in expanding but very fragmented markets”, explains the establishment.

Which brings a competitive advantage to a value otherwise considered “very defensive” by the Canadian bank with 70% of its activity in businesses little linked to the economic situation.

Veolia will publish its third quarter performance indicators on November 7.