High-potential SMEs

Egm in X-ray: Palingeo sees a margin boom in the first half of 2024

The Brescia-based engineering company has a +66.2% Ebitda. It is among the Egm companies that have increased in value since the IPO (7 euro against the initial 5 euro)

by Valeria Novellini

25 October 2024

Aggiungi Il Sole 24 Ore
ai preferiti su Google

Milano: il palazzo della Borsa in piazza Affari

5' min read

Key points

Numbers
Future development focused on organic growth
Crucial acquisition of new non-Pnrr-related orders

5' min read

Palingenesis means 'renewal and regeneration', but it is not from this term of Greek origin dear to philosophy and theology that Palingeo, which made its debut at Euronext Growth Milan on 16 February 2024, took its name. In fact, it is a contraction of the terms 'piling, injection and geognostics', i.e. the activity carried out by the Brescia-based company, which is essentially concerned with soil consolidation and waterproofing, foundation engineering and land redevelopment. The term 'palingenesis' is also used in geology to indicate the phenomenon whereby, in deep zones of the lithosphere, rocks that have already solidified return to a molten state (i.e. a regeneration to a previous state).

The market definitely appreciated Palingeo. Against an IPO offer price of EUR 5, the current quotations are approaching EUR 7, which makes Palingeo a member of the not very numerous club of successful listings at this year's Euronext Growth Milan.

The numbers

In this case, the investors were right, as in the first half of 2024 Palingeo saw revenues increase by 28.7% to EUR 33.1m and production value by 27.1% to EUR 34.6m. Even better was the development of ebitda (+66.2% to EUR 6.9m), ebit (+88.2% to just under EUR 5.1m) and net profit (+70.8% to EUR 3.3m; the lower increase compared to ebit is solely due to a tax rate that rose from 22.8% to 30.8%). These results were achieved in spite of a 48.5% jump in service costs to EUR 5.5m, mostly driven by costs for professional fees which tripled from EUR 490,000 to EUR 1.5m in connection with the listing process.

Less pronounced is the growth in the cost of raw material purchases and consumption (+15.8% to EUR 12.2 million), essentially linked to the cost of materials for maintenance, which jumped 84.1% to EUR 1.3 million following the purchase of five new, latest-generation machines (interconnected technologies 4.0) with a low environmental impact (specialised machinery for micro-piles, large-diameter piles and reinforced concrete/plastic diaphragms), and that of labour costs (+18.4% to EUR 7.4 million), in the presence of new hires for a total of 19 units, 4 of which in the administrative management area and the remaining employees to support the greater number of open sites.

As at 30/6/2024, Palingeo showed a net financial debt of EUR 5.5 million (resulting in a Debt/Equity ratio of about 0.15 times, thus decidedly low), down from EUR 7.8 million at the end of 2023, obviously also due to the net proceeds of the IPO, which amounted to EUR 6.6 million. In the meantime, among other things, five new machines were purchased for a total amount of EUR 3.5 million.

Future development focused on organic growth

The strategy outlined at the time of the IPO is very straightforward, and obviously envisages the acquisition of new orders (also through the strengthening of the sales office and the opening of new local offices in addition to the five already existing ones, all leased, four of which are between Brescia and Mantua and one in the province of Messina), the technological innovation of the machinery park, and the hiring of highly specialised technical-managerial personnel. And as you can see, much of this strategy has already been initiated.

Growth through external lines is not ruled out, but not through the acquisition of companies in the sector (which is likely to be very expensive), but rather through the entry of companies active in process open innovation, safety at work, and innovation of the machinery fleet, which would allow the company not only greater production efficiency but also the possible implementation of a new line of business. For now, Palingeo relies on the Neapolitanopen innovation start-up MyAedes, which has enabled it to manage over 100 construction sites by digitising the work log and monitoring personnel access.

But the new orders? They arrived, and in particular at the end of June, the company was awarded a EUR 4.2 million contract with Società Appalti Lavori e Costruzioni for the execution of foundation works as part of the motorway link project between the A4 motorway and Val Trompia, Ospitaletto - Sarezzo, Concesio - Sarezzo section (Brescia). Even more important was the job order obtained at the beginning of October in temporary association with Bertini Costruzioni Srl and Allara on behalf of the West Sesia Irrigation Association, in order to carry out extraordinary maintenance works for the renovation of the historic Cavour Canal in Section 6 "Rilevata Dora" and Section 8 - 1st lot (Vercelli).

Crucial acquisition of new non-Pnrr-related orders

This order is particularly significant not only because of the amount that Palingeo is responsible for (approximately EUR 11.5 million, the works will be carried out in 2025 and in the first half of 2026), but also and above all because it is not a Pnrr-funded project. And since Palingeo works mainly on public contracts, and will obviously benefit considerably from the 'fervour' brought about by the Pnrr programmes, which, however, will not have a very long term, obtaining contracts of other types is vital. In the meantime, the backlog has exceeded 113 million and the time horizon reaches the first half of 2027.

In order to obtain new orders, Palingeo faces fierce competition from numerous companies active in the engineering and special works sector. They are generally unlisted, but among those listed in the prospectus are the listed giant Trevifin from Cesena (recently emerged from a financial restructuring process, as at 30/6/2024 it had a backlog of 788.4 million) and the Friuli-based Icop (a benefit company), which has followed Palingeo's example by landing on Euronext Growth Milan on 25 July 2024. And Icop was also rewarded by the market with quotations currently around EUR 8 against an offer price of EUR 5.92; on the other hand, the results as at 30/6/2024 were very brilliant and the company as at 30 June 2024 had a backlog of EUR 898 million, of which more than 85% referred to specialised activities in the subsoil (given its size, Icop would actually be more suitable for Euronext Milan, but it has a low free float of only 16.8% of the share capital).

Floating

It is not that Palingeo's free float is very high, since it amounts to 24.29% of the share capital (and this share includes 4.36% ofFrench institutional investor Indépendance Asset Management Sas specialising in investments in small and mid caps). After the listing, another specialised investor, this time an Italian one, RedFish Listing (same management as the listed RedFish LongTerm Capital), also entered the share capital with a 3.42% stake purchased by Palingeo's reference shareholders at EUR 5.8 per share. And given the current prices, it is already making a profit.

Palingeo is not a benefit company like Icop, however it is by no means insensitive to ESG issues and has initiated projects to reduce and improve the use and efficiency of chemical products (in collaboration with Nowal Chimica Srl, active in lubrication chemistry) as well as the reorganisation and energy efficiency of the Casalmoro (Mn) logistics hub. It also collaborates with the benefit company and B Corp Green Future Project Srl and, by purchasing certified carbon credits, reduces its energy footprint by supporting a renewable energy project in Tamil Nadu (India), the preservation of the Canandè reserve (Ecuador) and the planting of small mangrove trees in Maravolavo (Madagascar). For the time being, however, no real sustainability report has been prepared.

The company has the numbers to continue to grow and will eventually be able to do so following the exercise of the '2024 - 2026' warrants, the first period of which will take place at the beginning of December 2024 at a price of EUR 5.05 per new share; the subsequent periods (December 2025 and 2026) will have exercise prices of EUR 6.05 and EUR 6.655 per share, respectively. All already 'in the money' considering current share prices.