Is AF Gruppen (OB:AFG) Undervalued On Its NOK 500 Million Statnett Contract Win?

AF Gruppen (OB:AFG) is back in focus after subsidiary AF Elkraft secured turnkey contracts from Statnett for high voltage installations at three Norwegian transformer stations, with a combined value slightly above NOK 500 million.

See our latest analysis for AF Gruppen.

AF Gruppen’s recent contract win comes after a period where momentum in the stock has been gradually building. The 30 day share price return is 7% and the 90 day share price return is 11.81%, while the 1 year total shareholder return of 34.76% and 3 year total shareholder return of 70.74% indicate investors have been rewarded over a longer horizon.

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AF Gruppen’s contract pipeline and recent share gains set the stage for a closer look at what investors are paying for that exposure today and whether the current price still offers an appealing risk reward trade off.

Price-to-Earnings of 19.5x: Is it justified?

AF Gruppen is trading on a P/E of 19.5x, which is higher than several benchmarks and sets expectations for solid earnings delivery at the current NOK198.8 share price.

The P/E ratio compares what investors pay today for each unit of current earnings. For a contracting and industrial group like AF Gruppen, it is a quick way to see how the market prices its earnings power relative to peers in the construction sector.

Here, the stock is described as expensive versus both its peer group at 14x and the broader European construction industry at 15.8x. It is also above the estimated fair P/E of 17.8x, which suggests the current multiple is ahead of the level the market could move toward if expectations for earnings growth or returns on capital were to cool.

AF Gruppen’s recent share price strength and solid forecast metrics are therefore coming with a premium tag compared to peers and to the estimated fair ratio.

Explore the SWS fair ratio for AF Gruppen

Result: Price-to-Earnings of 19.5x (OVERVALUED)

However, AF Gruppen’s premium P/E leaves less margin for error if earnings delivery, contract execution, or conditions in its core Norwegian and Swedish markets turn out weaker than expected.

Find out about the key risks to this AF Gruppen narrative.

Another view on AF Gruppen’s value

The P/E of 19.5x makes AF Gruppen look expensive, but the SWS DCF model points in the opposite direction. With the stock at NOK198.8 and a DCF value of NOK243.53, it is flagged as trading about 18.4% below that estimate. So which signal should carry more weight for you?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out AF Gruppen for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 211 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If the mix of AF Gruppen’s premium P/E and discounted DCF leaves you unsure, take a closer look at the underlying drivers and form your own view, then review the 3 key rewards

Looking for more investment ideas beyond AF Gruppen?

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• Strengthen your core holdings by spotting companies that pair financial resilience with earnings quality through the solid balance sheet and fundamentals stocks screener (419 results).
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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