SRV - CMD notes

Operative EBIT of at least EUR 50m by the end of 2027

With the revised strategy, SRV strives towards sustainable profitability and aims to reach the updated long-term financial objectives through the continuous optimization of its business operations. SRV targets to have operative EBIT of at least EUR 50m (prev. 6%) and revenue >EUR 900m (prev. EUR 900m). The company seeks to achieve the long-term financial objectives by the end of 2027 (prev. 2026).

Story remains largely unchanged

As commented in our previous company update, SRV is in a strong position to navigate the current challenging construction market. We still see that the profitability will remain depressed in 2024E as the share of developer contracted housing will remain small with the current low level of starts. Going forward, the two main drivers for the company to reach operative EBIT of at least EUR 50m by 2027 are 1) volume increase and 2) increase in development and developer contracting projects. SRV has a substantial amount of floor space in its project development pipeline which is ready to be utilized during the strategy period. We revise our long-term estimates slightly driven by the refined strategy of boosting the proportion of development and developer-contracted projects. This is further backed by the company's preparedness to execute projects, supported by the development pipeline. Our estimates remain below the long-term financial targets as our long-term margin estimates are roughly in line with the company’s historical operative margin levels.

BUY with a TP of EUR 4.1 (4.0)

Our 2023E estimates do not support the current pricing, on the other hand, SRV trades at roughly 9-10x 2024E P/E and EV/EBIT which we view as a fairly moderate level. We continue to see long-term potential, however, visibility remains low, especially in the midst of the current unpredictable market conditions. With slight revisions to our estimates and higher peer group multiples, we adjust our TP to EUR 4.1 (4.0) with BUY-rating intact.