SRV - Still on track

SRV’s Q2 results were fairly in line with expectations and held little new information. Progress is being made slowly but steadily and the company is quite well on track to regain decent profitability levels. We retain our BUY-rating and target price of EUR 0.8.

No surprises in Q2
SRV reported Q2 results that were fairly well in line with expectations. Revenue declined some 18% y/y to EUR 218.0m (EUR 232.1m/243.0m Evli/cons.) mainly due to lower business construction revenue. The operating profit was fairly good, at EUR 6.3m (EUR 5.8m/5.0m Evli/cons.), and the operative operating profit stood at EUR 5.7m (Evli 5.8m). The order backlog was down 21% y/y at EUR 1,048m. The guidance for 2021 of EUR 900-1,050m in revenue and operative operating profit of EUR 16-26m remains intact. The second quarter was rather limited in new information content, one highlight being the completed financing arrangements that clearly improved the maturity structure.

Estimates largely intact, potential minor headwind in H2
We have made some smaller adjustments to our 2021 estimates, now expecting revenue of EUR 907.2m (prev. 904.3m) and operating profit of EUR 22.1m (23.9m). Revenue in H2 is expected to improve clearly on H1 with for instance the completion of the second Kalasatama tower, Loisto, but relative profitability is expected to be weaker due to lower margins in key projects. Elevated building material costs and availability could cause some headwind in the latter half of 2021 but so far, the impact does not appear to be material. Start-ups of developer-contracted housing units continued on a slight positive trend, with the financing arrangements opening up potential for accelerated pace given sufficient demand.

BUY with a target price of EUR 0.8
Q2 was quite neutral and did not affect our view of SRV as an investment and SRV’s potential is being unlocked, although slowly. We retain our target price of EUR 0.8 and BUY-rating.

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