Imprendiroma SpA (RNV)
Italian construction company with impressive growth
Thesis Summary
Imprendiroma S.p.A., a prominent player in Italy's urban regeneration and building renovation sectors, operates through multiple specialized business units that focus on construction, energy efficiency, and real estate development. The main point made by Imprendiroma is to manage the entire process of renovation acting as a general contractor, leaving no job to their clients to do. We believe Imprendiroma offers significant upside potential over the next years due to:
Sustained Revenue Growth: Driven by increasing demand for energy-efficient building solutions and public works projects funded by the European Union (EU).
Strategic Positioning: The company is exceptionally well-positioned to benefit from the EU's stringent "Case Green" directive and the Next Generation EU plan, which heavily incentivize energy efficiency and sustainable urban development.
Undervalued Market Position: Currently trading at a 1.8x Price-to-Earnings (P/E) ratio, the company is significantly undervalued compared to its growth prospects, offering a compelling entry point for investors.
Financial Stability Post-IPO: Since its IPO, Imprendiroma has demonstrated robust financial performance, marked by significant revenue growth, improved margins, and a solid financial foundation.
Additionally, the company plans to diversify strategically into the solar sector through acquisitions. This move will bolster its in-house expertise while maintaining the flexibility to contract additional resources as needed. By securing a core team with specialized knowledge, Imprendiroma ensures it can respond effectively to emergency situations and fill service gaps, minimizing risks and costs as it expands into new sectors.
Business Model
Stock overview
Imprendiroma is a small-cap Italian company that went public in July 2022 via an IPO on the Borsa Italiana (BIT). However, the stock remains highly illiquid, with almost 90% of the company’s shares owned by insiders. The company only publishes its financial statements in Italian, which may contribute to its under-the-radar status among international investors.
Core Operations
Imprendiroma specializes in urban regeneration and renovation projects for public, commercial, and residential buildings. The company leverages its expertise in architectural, structural, and energy design to manage all phases of a project—from conceptualization to execution—while maintaining a strong emphasis on sustainability and energy efficiency.
Key Business Units
NR Roma S.r.l.: Specializes in construction, maintenance, and energy upgrading interventions, ensuring quality and adherence to high standards.
Arimondi Immobiliare S.r.l.: Focuses on sustainable real estate acquisition and development, handling Imprendiroma's real estate activities.
H501 City Hub S.r.l.: Provides architectural design and engineering services, focusing on deep retrofitting for commercial, cultural, and residential buildings.
Next Factory S.r.l.: Manages administrative and fiscal processes for energy efficiency projects and supports business development in the construction industry.
Krome LTD: Oversees the international marketing of Italian-made building technologies, extending Imprendiroma’s market reach.
Stiltermica. It provides 360° heating services, from the installation and maintenance of centralized boilers to heat metering, with the aim of maximizing energy efficiency.
Leveraging EU Initiatives
Imprendiroma is strategically aligned with key EU initiatives that promote energy efficiency and sustainability in the construction industry. The "Case Green" directive, aimed at decarbonizing the EU's building stock by 2050, mandates significant upgrades to energy performance across all buildings. Imprendiroma’s focus on energy-efficient retrofitting aligns perfectly with these goals, positioning the company to benefit from the increased demand for compliant construction services.
Moreover, the Next Generation EU plan provides substantial funding for projects that support green and digital transitions. Imprendiroma has already secured public sector contracts financed by this initiative, and its integrated approach makes it a strong candidate for future projects.
Regulatory Environment and Tax Incentives
Imprendiroma has effectively capitalized on Italy’s tax incentives for energy efficiency and building renovation, particularly through programs like the "Superbonus 110%" and "Ecobonus." These incentives have been crucial in driving demand for the company’s services and expanding its project portfolio. However, changes in the regulatory environment—such as tighter rules around tax credit transfers and invoice discounts—could impact the company’s ability to convert these credits into cash flow. Since these tax credits make up a significant portion of Imprendiroma’s balance sheet, any unfavorable regulatory changes could present liquidity risks.
Competitive Advantage
The industry's vertically integrated structure creates a strong incentive for existing players to maintain their market share and profitability, making it challenging for new entrants to gain traction. As a General Contractor, the company has the ability to oversee every aspect of project delivery, from the initial planning stages to the final execution. This is especially beneficial for large-scale public works projects funded by the EU, as strict regulatory standards must be met.
There are significant barriers to entry in this business, as the certification process is heavily regulated and difficult to navigate. Renovalo’s own legal team has proven experience supporting its clients with regulatory compliance regarding tax incentives requirements and energy performance certificates.
The company's CEO brings valuable experience to the table, having served as an Officer in the Ministry of Defense from 2005 to 2019, which could facilitate closer contact with institutions for public renovations.
The company's flexible business model of contracting out work rather than relying on a large in-house workforce facilitates easy expansion across Italy without the risk of surplus staff in the future.
It is worth noting that most reviews that can be found online are positive, these comments arise from both clients and contractors which we believe has allowed the company to grow and strengthen its customer base over the years.
Financials/Valuation
Financial Performance
Revenue Growth: Imprendiroma achieved a value of production of €132.9 million in 2023, up 165% from 2022, driven by an increase in both the number and value of active projects.
Profitability: The company's EBITDA margin improved to 25% in 2023 from 21% in 2022, indicating enhanced operational efficiency. The return on equity (ROE) also increased to 53%, underscoring strong financial performance.
Net Operating Working Capital: The company reported €35 million in net operating working capital in 2023, up from €9.5 million in 2022, highlighting its improved cash flow management.
It is important to note that the growth experienced in 2023 is unlikely to be sustained at the same rate, as it was significantly boosted by generous government incentives for building renovation in Italy. The introduction of Decree Law No. 39 in March 2024, which restricts the invoice discounting mechanism related to tax bonuses in construction, will negatively impact orders that were not yet contracted. However, clients can still benefit from the "ecobonus" tax credit of 70% and 65% for the years 2024 and 2025.
Urbanization trends, which concentrate populations in city centers, make renovation an increasingly attractive alternative to new construction. Renovation is often more cost-effective and better aligned with the demand for housing close to urban amenities.
Valuation Metrics
Market Capitalization: Imprendiroma's market capitalization was approximately €33 million as of August 20, 2024, with a share price of €2.98, reflecting a P/E ratio of 1.8x. This low valuation presents a significant upside opportunity, especially given the company’s growth prospects.
Balance Sheet Composition: The balance sheet is notably composed of tax credits related to government incentives. While these credits provide a near-term boost to cash flow, they also introduce risks if regulatory conditions change or if the company faces challenges in monetizing these credits.
Although we expect a revenue decrease in 2024 compared to 2023, it should still be significantly higher than the €36 million reported in 2022. Backlog for 2024 (42 million €) has decreased to one quarter of the backlog for 2023 (165 million €).
Assuming an organic growth of 30% in revenues, a possible scenario for 2024 revenue is around €80 million. If the company maintains its operating margin of 20%, it could achieve earnings per share (EPS) of approximately €1. This decrease in earnings would result in a P/E ratio of 3x, still making it an attractive investment from a valuation perspective.
Total current assets amount to €86 million, mainly composed of tax credits valued at €76 million, which are redeemable during 2024. These figures fully justify the market cap of €33 million, as total liabilities amount to €55 million, leaving a net asset value of €31 million.
Industry Context
EU Regulatory Environment and Its Impact
The EU regulatory environment and italian government’s fiscal incentives offer some protection against the cyclical nature of the construction industry, which could face challenges in Italy due to current economic conditions. However, Italy’s construction industry is affected by two main demand drivers:
Aging Infrastructure: Italy’s aging infrastructure and residential buildings create a robust demand for renovation. Many buildings are old and in need of updates to meet modern living standards and regulatory requirements.
Urbanization: The concentration of population in urban areas increases the demand for both new construction and renovation projects, especially in cities like Milan, Rome, and Naples.
Competition
Italy’s construction industry competitive landscape is as in many other southern european countries characterized by:
Fragmented Market: The Italian construction and renovation industry is highly fragmented, with many small and medium-sized enterprises (SMEs) dominating the market. These companies often specialize in specific areas such as energy efficiency, historical restoration, or seismic retrofitting.
International Players: While local firms dominate, there is growing interest from international companies, particularly in large-scale infrastructure projects and advanced technology applications in construction.
Labor Market: Skilled labor shortages, particularly in specialized areas like sustainable construction and heritage restoration, are a significant challenge. This scarcity is driving up labor costs and could limit the growth potential in some segments of the market.
Risks Related to Tax Credits
Imprendiroma’s reliance on tax credits for a substantial portion of its balance sheet introduces specific risks. The Italian government has begun tightening regulations surrounding these credits, particularly concerning their transferability and the ability to use them as invoice discounts. These changes could impact the company’s revenue and margins, as clients will no longer receive the "ecobonus" incentive after 2026. However, more EU incentives are expected to be introduced, which could mitigate these risks.
Conclusion
Imprendiroma presents a compelling investment opportunity, supported by its strategic focus on sustainable urban development and alignment with key EU initiatives. The company’s strong financial performance, combined with its undervalued market position, offers significant upside potential for investors. However, the reliance on tax credits introduces some risks, particularly if the EU discontinues green and renovation incentives.
We are closely monitoring the company, given its short history, and are particularly interested in assessing the impact of regulatory changes in the first half of 2024 given the significant decrease in backlog observed compared to 2023.
We are also keen to see the company’s plans regarding capital returns, as we expect new investments or an increase in their dividend, given the challenges associated with stock repurchases.