Consti - Earnings visibility still an issue

Project burden still visible in profitability

Consti’s Q2 results fell slightly short of our expectations. Profitability was as expected further burdened by the impact of an individual building purpose modification project, but EBIT in Q2 was still weaker than anticipated, at EUR 0.1m (Evli EUR 0.6m). The revenue of EUR 81.2m was in line with our estimates (Evli EUR 81.3m), aided by the completion of certain larger projects. The order backlog of EUR 227m was down 20.8% y/y due to the high sales and lower orders received.

Order backlog raises some concerns for sales growth

We have made slight revisions to our estimates, mainly to near-term net sales estimates. Consti’s order backlog and orders received development has in our view been relatively meager during H1/19, which coupled with the continued sales growth during H1 opens up some concern for sales development in 2020. We have lowered our 2019-2021E sales CAGR estimate to 1%, with essentially flat growth in 2020. Due to the past profitability challenges we do not however see sales growth as a primary concern and see that Consti’s near-term focus will remain on improving profitability. We expect a notable increase in profitability during H2/19, as the project that burdened H1 is expected to be completed and expect 2019 EBIT of EUR 5.2m.

HOLD with a TP of EUR 5.80

Consti trades below peers, in particular on 2020 estimates when earnings are expected to rebound. Although profitability according to Consti has remained at good levels, when excluding the profitability burdening large projects, we see that weak visibility in the underlying profitability still warrants caution and retain our HOLD-rating with a target price of EUR 5.80.