Dominion investment case

By Reus Investments

In this video we introduce Dominion, which is a story of excellent management creating a buy & build story of different businesses and sectors that focus on delivering value to their client by making more efficient and flexible the productive processes of their clients.

 Dominion investment case (Global Dominion Access)

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They divide their business in two divisions 1) Services (62% of revenues): they manage the process of their client to make it more efficient, and 2) Solutions (38% of revenues): they bring products and platforms to allow a much more efficient process but managed by the client (turnkey EPC, hospitals, energy plants, etc).

Dominion has presence in three sectors: TMTs (48% of revenues), industrial (50% of revenues) and renewable (2% revenues). Services is a more recurrent business with an average contract life of 3 years while solutions has much less recurrence, although sometimes after a project completion they are able to gain the maintenance, being this a key to gain further future recurrent revenues.

Dominion was founded in 1999 as a technology based provider of services to telecommunications companies and started the international expansion in 2001 opening a branch in Mexico. Now they have presence in 28 countries, with more than 1.000 clients. They have been part of CIE and they have been growing under its umbrella but without sharing any cost and managed with complete independence. What they are sharing is the way of doing things: giving high importance to financial measures like margins, free cash flow (working capital is key), ROIs and paybacks and the ability to say no to the client if those measures are not achieved in each and every individual project.

Their objective is to buy with a multiple below 3x EV/EBITDA using the EBITDA of year three. Acquisitions are crucial for this company and a fast way of creating value. Dominion is a CIE Automotive spin-off listed this year founded 17 years ago. CIE has also worked as a school of management; the CIE way has been replicated before in two other companies: Gamesa (with Ignacio Martin and Ignacio Artazcoz former CIE’s CEO and CFO) and Tubacex (with Jesús Esmorís former Managing Director and now Tubacex’s CEO). CIE has had a CAGR of 26% during the last 5 years.

During the IPO, Dominion set up 5 year objectives (2020) of:

  • 1bn sales (525mn 2015): with 300mn coming from M&A which implies nearly 8% of organic growth.
  • Improve 2pp the EBIT margin up to 8%
  • No more than 2x ND/EBITDA

Execution is the main risk and the company knows it, so avoiding a big failure is mandatory. M&A is also an important risk, though much is mitigated through earn-outs.

We use both DCF, Target FCF yield and peer valuation reaching levels fo €5/sh. Key issues here are the net cash position that the company holds, even after some acquisitions and its high EBITDA to FCF conversion (60%).