SRV - Focus is on the outlook

SRV will release its Q4 results on Feb 1; we expect revenue to turn to growth with ongoing business construction projects supporting the volumes. Our focus lies on the order backlog development and FY 2024 outlook.

Q3 was encouraging, CMD provided color on revised strategy

SRV delivered encouraging Q3 results considering the current market conditions. With the operative EBIT of EUR 4.6m for Q3, SRV’s YTD operative EBIT is at EUR -1.3m ahead of the Q4 release. The company’s guidance remained unchanged as the company expects the operative EBIT to be positive for FY 2023. SRV updated its strategy in November's CMD, aiming for an operative EBIT of minimum EUR 50m by 2027. Achieving this is feasible, but our long-term forecasts fall short of this goal, which is highly reliant on market conditions.

 

Slight estimate adjustments for Q4/23 and FY 2024

We have revised our growth estimates for Q4/23 and FY 2024 slightly. Our updated net sales estimate for Q4 2023 stands at EUR 195.6m (prev. EUR 203.3m), with the lower net sales and expected continued cost inflation, our estimate for Q4/23 operative EBIT is at EUR 5.6m (prev. EUR 6.5m). We still expect that the large business construction projects started during Q3 will contribute to revenue growth during Q4 (estimating 7.8% y/y growth for Q4/23). For housing construction, our estimates remain at a conservative level. We also revise our 2024E net sales estimate to EUR 714.8m (prev. EUR 749.8m) as we expect that the business construction revenue growth will continue in 2024 supported by the current backlog, yet at a slightly slower pace than previously expected. We now expect EBIT of EUR 18.1m for 2024E (prev. EUR 18.7m), with the negative effect of lower net sales somewhat offset by the ongoing change negotiations.

 

HOLD (BUY) at a TP of EUR 4.1

We currently estimate revenue growth for 2024E, yet profitability is expected to remain at a relatively low level driven by the project mix. After a nearly 20% share price rally since our rating upgrade, we see that the largest medium-term upside has been reduced. We consider the company's current pricing fair at roughly 11x P/E and EV/EBIT on our 2024E forecasts. We retain our TP at EUR 4.1 yet adjust our rating to HOLD (BUY).
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