SRV - Work still to be done

SRV reported weaker than estimated Q3 results, as project margin woes pushed EBIT into the red. Progress is however being made and Q4 completions and potential Pearl Plaza divestment should further strengthen the balance sheet. We adjust our TP to EUR 0.7 (0.8), BUY-rating intact.

Q3 results well below our estimates
SRV reported Q3 results below our estimates. Revenue amounted to EUR 191.1m (EUR 261.1m/235m Evli/cons.), falling below our estimates due to the timing of recognization of income of the Loisto-project but also due to the lower activity in business construction showing more clearly. The operating profit fell to EUR -1.6m (EUR 5.3m/4.6m Evli/cons.), as the weak financial development of the Tampere Areena project and construction material costs and availability impacted on profitability. Actions to strengthen the balance sheet saw the IB net-debt decrease further by almost EUR 53m. In light of the weak Q3 SRV revised its guidance, expecting 2021 revenue of EUR 900-1,000m (prev. 900-1,050) and operative operating profit of EUR 16-21m (prev. 16-26m).

Further strengthening of balance sheet seen
Our revenue estimates for 2021 remain rather unchanged, now at EUR 912.2m, as we were already near the lower end of the guidance range. Q4 will see a clear increase in housing construction revenue with the completion of Loisto. Our revised estimates put 2021 operative operating profit at EUR 17.2m (prev. 21.1m) with the weaker profitability in Q3. SRV targets to close a deal in regards to the divestment of Pearl Plaza during 2021, which together with housing completions in Q4, namely Loisto, would free up a considerable amount of capital and further strengthen the balance sheet.

BUY with a target price of EUR 0.7 (0.8)
With the setback in margins in Q3 and uncertainty from construction material availability and prices we lower our target price to EUR 0.7 (0.8) but retain our BUY-rating.

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