Consti - Profitability remains a concern

Consti’s third quarter results were affected by lower profitability in a limited number of projects, with group EBIT at EUR -1.4m. The weaker profitability was largely related to electrical installations and project delays leading to additional costs from catching up with timetables and in our view of more temporary nature. Sales growth continued at a slower pace, as Consti has tightened tendering criteria. We retain our HOLD-rating with a target price of EUR 7.5 (8.2).

A fraction of projects driving weak profitability

Consti’s third quarter EBIT was EUR -1.4m, affected by lower than expected profitability in project deliveries of the technical installations business included in the Technical Building Services business area and the housing repair business included in the Building Facades business area. The problems related largely to electrical installations and projects being delayed, resulting in additional catch up costs. The issues concern a limited number of projects, of which most will be completed during 2018. The profitability issues in our view are more of a temporary nature. Of some concern is the communication between worksites and management, as the problems appear to have come as a complete surprise.

Seeking to further tighten project tendering criteria

Consti’s Q3 sales growth continued at a slower pace, at 1.4 % y/y, as Consti has been tightening project tendering criteria. Consti will also continue to tighten criteria, with building purpose modification projects being one area under scrutiny, having seen a EUR 4.0m negative impact from two such projects during 2018.

HOLD with a target price of EUR 7.5 (8.2)

Our estimates post-Q3 remain unchanged. We remain conservative on Q4 profitability due to the project issues but see potential for notable improvement. We retain our HOLD-rating with a target price of EUR 7.5 (8.2).

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