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SRV - Waiting for residential volumes to pick up

SRV’s current low risk backlog will support it through the tougher market with hopes for higher margins on hold until the housing construction volumes pick up.

Sales and operative EBIT missed, backlog kept growing

Revenue in Q4 was EUR 181.8m (EUR 181.2m in Q4/22), below our estimate of EUR 195.6m, with 0.3% y/y growth. With the lower-than-expected volumes, operative operating profit in Q4 amounted to EUR 2.4m, also below our estimate of EUR 5.6m. For FY 2024, SRV expects revenue to grow compared to 2023 (EUR 610.0m 2023) and operative EBIT to improve on 2023 (EUR 1.1m 2023). The company’s order backlog grew for the fifth consecutive quarter to EUR 1049m (EUR 839m Q4/22) driven by business construction backlog growth. As expected, the BoD proposes no dividend to be paid for the FY 2023.

 

Business construction will remain the main driver in 2024

The backlog is extremely heavily tilted towards business construction as it comprises roughly 90% of the current backlog. With no developer contracting start-ups during 2023 and none under construction, we expect no completions for 2024. While we estimate some sales of the current unsold finished developer contracted units, larger sales could provide a positive surprise to our estimates. In addition to developer contracting, the company has only a small amount of residential contracting and investor projects. We lower our estimate for 2024E net sales from EUR 714.8m to EUR 698.5m, as we continue to expect revenue growth from business construction area while housing construction is estimated to decline further. With the low margin yet low risk business construction backlog, we now estimate operative EBIT of EUR 14.6m (prev. EUR 18.1m) for FY 2024 with an operative EBIT margin of 2.1%.

 

HOLD with a TP of EUR 4.1

With our updated estimates for 2024E, SRV is priced at roughly 12.9x P/E and 14.6x EV/EBIT, with a slight premium when compared to the Nordic construction peers. The multiples for 2025E are already at a low level as we estimate a minor pick up in housing construction and therefore margins. Despite the long-term potential, we consider SRV as fairly valued especially given the low visibility into 2025E.

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