Long Duration Public Programs And Technical Services Will Underpin A Stronger Long Term Outlook

Catalysts

About Koninklijke Heijmans

Koninklijke Heijmans is a Dutch construction and engineering group active in residential building, nonresidential projects, infrastructure and related technical and energy services.

What are the underlying business or industry changes driving this perspective?

• Large, long duration public programs in housing, infrastructure, grid reinforcement and defense facilities are feeding a €3.7b order book with projects stretching out to 2031. This can support revenue visibility and smoother earnings over time.
• Growing demand for complex technical services in nonresidential buildings and energy systems, where clients want end to end support from design through maintenance, increases the share of recurring contracts and can support steadier revenue and EBITDA margins.
• Heijmans is ramping up modular, timber frame and kit based production for housing and installations. This can lift productivity per employee and help protect or improve net margins as wage and material pressures persist.
• Rising investment needs in energy infrastructure and grid congestion solutions, such as high voltage modules for TenneT and grid aware district energy systems, give the Connecting segment a larger mix of higher value energy work. Management indicates this work can carry EBITDA margins that are measured in percentage points above some traditional activities.
• Scale benefits and cross selling from acquisitions like Hegeman, combined with a margin over volume approach and selective tendering in higher quality work, can support underlying EBITDA margin progression and earnings resilience even if headline volumes fluctuate between segments.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Koninklijke Heijmans compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Koninklijke Heijmans's revenue will grow by 9.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.7% today to 6.6% in 3 years time.
• The bullish analysts expect earnings to reach €243.6 million (and earnings per share of €8.91) by about July 2029, up from €130.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €216.8 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.1x on those 2029 earnings, down from 20.7x today. This future PE is about the same as the current PE for the GB Construction industry at 17.1x.
• The bullish analysts expect the number of shares outstanding to grow by 0.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.15%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent bottlenecks in Dutch housing policy, such as the nitrogen issue, permitting delays, staff shortages at local authorities and the 2/3 affordability rule for inner city apartments, could keep new projects from moving ahead at the pace implied by the bullish view. This would directly cap housing related revenue and limit earnings growth.
• The company is leaning into more complex energy and infrastructure work, including grid reinforcement modules for TenneT and defense related real estate. In these areas, higher technical risk and more demanding clients can increase the chance of project overruns or contract disputes, which would put pressure on net margins and earnings even if revenue holds up.
• Heijmans is investing heavily in modular, timber frame and kit based production and considering new factories for these activities. Management notes that timber homes were still loss making in 2025 and only expected to reach breakeven in 2026, so any delay in achieving scale or utilization could turn expected efficiency gains into a drag on EBITDA and net profit.
• The order book in the Working and Connecting segments extends out to at least 2031 and includes a rising share of large, technical projects. Any future change in public sector priorities, funding or partner behavior could affect conversion of this backlog to actual work, creating downside risk for long term revenue visibility and profitability.
• Management is prioritizing reinvestment of strong cash generation into land positions, M&A and new production capacity rather than share buybacks. If acquired businesses like Hegeman or new factories do not achieve the expected uplift within the suggested 12 month timeline, the extra capital at work could dilute returns and weigh on earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Koninklijke Heijmans is €123.0, which represents up to two standard deviations above the consensus price target of €121.5. This valuation is based on what can be assumed as the expectations of Koninklijke Heijmans's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be €3.7 billion, earnings will come to €243.6 million, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 7.1%.
• Given the current share price of €98.25, the analyst price target of €123.0 is 20.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.