SRV - Backlog promises a better tomorrow

Profitability remained under pressure during Q2

Revenue in Q2 was EUR 143.1m (EUR 211.4m in Q2/22), below our estimate of EUR 156.1m. Revenue declined 32.3% y/y. Operating profit in Q2 amounted to EUR -3.0m (EUR 10.1m in Q2/22), below our estimate of EUR 1.2m, at a margin of -2.1%. The operative operating profit in Q2 amounted to EUR -3.9m, also below our estimate of EUR 1.2m. The outlook for 2023 was kept unchanged and SRV still expects y/y revenue decline in 2023 and positive yet lower than 2022 operative operating profit.

Soft H1 increases pressure for H2

SRV’s order intake during Q2 was impressive at EUR 245.9m (EUR 72.3m in Q2/22). With the strong order intake, the company’s order backlog was at a healthy level of EUR 993.1m at the end of Q2 2023 (EUR 745.9m in Q2/22), up by 33.1% y/y. The company expects that the strong backlog in business construction will start to bring in net sales especially during the Q4 2023 and beyond. We have kept our estimates for business construction net sales intact as we keep forecasting substantially higher volumes for Q4 2023. For housing construction, we increased our estimates for H2 2023 as the activity level was higher than expected during Q2 2023 and the company was able to start new units at the end of the quarter. With the Q2 figures and our revised estimates, our estimate for FY 2023 operative EBIT is at EUR 1.1m. Our revised estimates align with the company's 2023 outlook, yet the risk of falling short of the guidance has increased.

HOLD with a target price of EUR 4.3 (4.4)

We estimate that the current backlog will start delivering net sales at the latter part of H2 2023 and beyond. With the soft H1 profitability, risk of falling short of the current guidance has increased. Despite near-term pressure, the healthy backlog promises a better future. We revise our target price to EUR 4.3 (4.4) and retain our HOLD rating.