SRV - Moving in the right direction

Profitability improved in Q1 y/y as expected

Revenue in Q1 was EUR 167.0m (EUR 138.3m in Q1/23), above our estimate of EUR 152.0m. Revenue grew 20.7% y/y. The revenue growth was stronger than expected in business construction where the revenue grew 37% while we estimated growth of 23% y/y. Housing construction revenue was at a very low level of EUR 10.9m as expected. With the higher total volumes, SRV’s EBIT increased to EUR 1.3m, trailing only slightly our estimate of EUR 1.5m. While the market remains challenging in the residential side, the company believes that it will be possible to start up selected development or developer-contracted projects in the latter part of the year.

Non-residential will remain in the driver’s seat

As we have commented earlier, the company’s current non-residential backlog supports its volumes through 2024. SRV also has a substantial amount of won contracts and projects under preliminary contracts that have not yet been recognized in the company’s backlog (EUR 933m 3/24 vs. EUR 715m 12/23). Profitability wise, the margins will remain modest in 2024 driven by the project mix. SRV had no developer-contracted housing units under construction during the first quarter and therefore we expect that the company’s developer-contracted housing sales will comprise of the current unsold units during 2024-2025E. We have made only slight adjustments to our estimates for 2024E. We now estimate revenue of EUR 714m (prev. EUR 685) with operative EBIT of EUR 13.1 (prev. EUR 13.3m). For 2025E we have increased our estimates for other than developer-contracted residential sales.

HOLD with a TP of EUR 4.3 (prev. EUR 4.1)

SRV’s Q1 was a step in the right direction. While the non-residential sales keep the margins modest for 2024E, the volumes provide a bridge into 2025E where we expect that housing sales (other than developer contracted) start to contribute slowly into the figures.