Consti - Upgrade to BUY

Consti posted good Q3 results, showing clearly positive profitability figures again after four consecutive weak quarters. Although some open risks still exist in older projects, the stricter bidding procedures, the new organizational structure and lack of new significant negative impact projects supports continued healthy profitability. Going forward the order backlog development will be of larger interest and the Q3 development has prompted us to expect sales declines in 2020.

Clear profitability improvement

Consti’s Q3 saw profitability returning back on a healthier track, with EBIT of EUR 2.1m (Evli 2.2m). The improvement in profitability (Q3/18: -1.4m) was due to a clearly smaller impact of old projects in the discontinued housing repair unit, which however still did have an impact. Net sales growth was better than we have expected, growing 3.7% y/y to EUR 81.8m (Evli 79.5m). The order backlog development remained rather weak, amounting to EUR 206.8m in Q3, down -23.6% y/y. The decline has been affected by stricter bidding procedures, but also to some degree by a tie-up of resources in larger projects.

Order backlog development speaks for 2020 sales decline

We have lowered our net sales estimates post-Q3, now expecting a sales decline in 2020 of ~5%. Our current estimate appears rather generous given the order backlog development. More clarity will be given by order intake during Q4/19-Q1/20, the quarters in which intake has typically been strongest. In our view the freeing up of resources, improved profitability and the progression of the organizational structure development speak for the potential for improving order intake. Our bottom-line estimates remain largely intact.

BUY (HOLD) with a TP of EUR 5.8 (5.4)

The signs of profitability improvement alleviate some of the uncertainty pressure, although risks still remain. Nonetheless, valuation still appears attractive and we raise our target price to EUR 5.8 (5.4) and upgrade to BUY (HOLD).

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