SRV - Market outlook remains bleak
SRV’s Q3/24 was broadly in line with our estimates. While we did not anticipate any developer-contracted completions for 2025E, we have now also revised our sales estimates for units sold to investors downwards because of the cautious market outlook. The pricing appears elevated based on our 2024-2025 estimates; however, there is still significant long-term potential, even though it’s currently constrained by market conditions.
No large surprises for Q3
Revenue in Q3 was EUR 183.5m (EUR 146.9m in Q3/23), slightly above our estimate of EUR 179.5m. Revenue grew 24.9% y/y. The operative operating profit in Q3 amounted to EUR 4.5m (EUR 4.6m in Q3/23), slightly below our estimate of EUR 4.9m. Both business and residential construction net sales were slightly higher than we had estimated. Despite the slight net sales beat, profitability remained modest and was actually a bit below our projections. Order backlog grew 18.5% y/y nearly reaching the EUR 1.2b mark. This was expected as the southern part of Laakso Joint Hospital’s main building (EUR 174m) was entered into backlog during the quarter.
Slight estimate adjustments for 2024-2025E
With three quarters of the fiscal year in the books, SRV specified its outlook for 2024. SRV expects that net sales will amount to EUR 720-750m and operative operating profit to EUR 7-12m. With the actual figures for Q3 and slight adjustment for our Q4 estimates, we now estimate net sales of EUR 732.8 (prev. EUR 726.3m) and operative operating profit of EUR 10.2m (EUR 11.9m) for 2024e. For 2025E, we have decreased our estimate for housing construction investor sales while we have increased our estimate slightly for non-residential construction driven by the robust backlog. In terms of profitability, we have revised our estimates downwards due to the mix changes in our estimates and SRV’s track record during 2024 with a similar project mix.
HOLD with a TP of EUR 5.0 (prev. EUR 5.2)
With our updated estimates, SRV is priced at 21-14x EV/EBIT on our estimates for 2024-2025E. The valuation remains high on absolute levels yet is relatively neutral compared to the Nordic construction peer group for 2025E. The company’s balance sheet is in great shape and the long-term potential remains high as EV/EBIT falls to 8x based on our estimate for 2026E.