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Consti - Upgrade to BUY

Consti’s Q2 operating profit of EUR 2.4m was better than expected (Evli/cons. 1.8m/1.4m) and free cash flow and financial position improved clearly. The coronavirus pandemic has and will have some impact on demand in 2020 but the long-term demand situation remains favourable and the company now appears to be in good shape after recent year challenges. We upgrade our rating to BUY (HOLD) with a target price of EUR 10.0 (7.4).

Q2 profitability better than expected
Consti’s Q2 results were better than expected, as although the revenue of EUR 69.3m came in around expectations (Evli/cons. 68.5m/70.3m), the operating profit of EUR 2.4m clearly exceeded expectations (Evli/cons. EUR 1.8m/1.4m). The order intake in the quarter was also favourable, with new orders of EUR 66.8m, and the order backlog continued on a slight upwards trend since the end of 2019. Free cash flow in the quarter (EUR 8.1m) was exceptionally strong, boosting the rolling 12-month cash conversion ratio to 133.5%. As a result, net debt excl. IFRS 16 improved to EUR 8.3m (2019: 15.3m).

Company in good shape after previous year challenges
Consti’s Q2 report was clearly positive and following measures taken during the past years and management comments the company now appears to be in good shape. We expect sales to continue to decline y/y in H2 due to stricter bidding discipline but for profitability to continue to improve as a result of the healthier order backlog. The coronavirus pandemic has and will in our view have a slight impact on the demand situation during the year, but long-term demand drivers remain intact.

BUY (HOLD) with a target price of EUR 10.0 (7.4)
We have raised our 2020 EBIT estimate by 10% and slightly raised our 2021-2022 profitability estimates. With the higher profitability as well as cash flow and net debt improvements, possible near-term risks from the coronavirus pandemic and St. George arbitration proceedings are reduced. We raise our target price to EUR 10.0 (7.4) and upgrade our rating to BUY (HOLD).

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