SRV - Ready to capitalize on residential upturn

Revenue slightly above estimates while profitability missed

Revenue in Q2 was EUR 186.3m (EUR 143.1m in Q2/23), slightly above our estimate of EUR 178.7m. Revenue grew 30.2% y/y. Revenue grew at a faster rate than expected in non-residential as we estimated net sales of EUR 163.0m while SRV delivered EUR 173.3m. The operative operating profit in Q2 amounted to EUR 1.5m (EUR -3.9m in Q2/23), below our estimate of EUR 2.5m. Although the company’s profitability fell short of our estimates, it has delivered a positive operational EBIT for the past four quarters, demonstrating the profitability of its lower-margin non-residential project portfolio.  

2024E likely bottom-of-cycle in residential volumes 

With some downward adjustments for profitability in H2/24, we now model operative EBIT of EUR 11.1m (EUR 13.1m) for 2024E with operative EBIT margin of 1.6% (1.8%). The main drivers behind the downward revision are the slightly higher-than-expected OPEX during H1/24 and lower estimated residential sales for H2/24 as the market remains in wait-and-see mode. Our forecasts for 2025E have also been adjusted slightly since we expect no new developer contracted unit completions for 2025E due to lack of starts in H1/24. While we estimate no completions for 2025E, we expect a pick-up in residential volumes through contracting and units sold to investors. We now model residential construction share of total net sales at 13-19% for 2025-2026E, still far from the company’s long-term objective of 30-40%. 

HOLD with a TP of EUR 5.2

With 2024E likely being the bottom-of-cycle in terms of volumes for residential construction, our valuation leans more heavily towards 2025E. We maintain our TP at EUR 5.2 and rating at HOLD. We continue to see potential beyond 2025E yet still wait for more concrete evidence of a broader pick-up in the residential market.