SRV - Operational controllability remains the key
SRV publishes its Q3/24 figures on Thursday 24th of October. We anticipate a solid quarter, primarily fueled by non-residential growth. Profitability still relies on effective operational control due to the backlog composition.
Residential market should start slow recovery in 2025
The Confederation of Finnish Construction Industries RT estimates that residential construction volumes will grow by 15% y/y in 2025 from cycle low levels this year. Total construction volumes are projected to increase by 4% y/y, as non-residential, renovation, and infrastructure sectors are set to grow by 1-2% in 2025. SRV has not announced major residential projects during the quarter. In September, the company announced that it began pre-marketing of an apartment building that contains 53 residential units. With the current residential backlog and lack of project announcements, the company’s residential volumes depend primarily on contracting and possible investor projects in 2025.
Profitability relies on operational controllability
We have made some adjustments to our forecasts ahead of the Q3/24 report. We now expect net sales of EUR 179.5m and operative EBIT of EUR 4.9m for the quarter. Non-residential growth should continue, driven by the strong backlog. The company's non-residential net sales tend to lag behind backlog growth. The non-residential backlog began increasing in the second half of 2022 and the backlog is now close to EUR 1 billion. For residential construction, we expect quarter-on-quarter growth as SRV completed two larger development projects during the quarter. The group level profitability is reliant on operational controllability since a significant portion of net sales continues to come from lower-margin cooperative contracts.
HOLD with a TP of EUR 5.2
Based on our estimates for 2025E, SRV is valued at 12x EV/EBIT and 10x adj. P/E. We find the levels neutral given the current interest rate environment and uncertainty regarding the market environment. The valuation is fairly well in line with the Nordic construction peer group excl. outliers.