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SRV - Construction margins shaping up

Given the previously specified outlook the Q4 profitability is largely known, with the Investments segment overshadowing good construction progress. The Q4 report should bring a lot to the table, especially in regards of previous communication of restoring profitability back to 2017 levels, clearly above the 2020 guidance.

Good construction development burdened by investments
SRV will report Q4 results on February 4th. SRV specified its guidance earlier on, expecting the operative operating profit for 2020 to be in the range of EUR 3-6m. The Q4 results will be affected by changes in the value of the Investment segment’s balance sheet items for a total negative impact of EUR 12m. Although the negative impact casts a shadow on the good operative operating profit development during earlier quarters these items should to our understanding be non-cash, and the guidance still implies continued healthy construction margin development. Our estimate for the Construction segment’s operative operating profit margin in 2020 is at 2.9% (2019: 0.7%) and Group operative operating profit estimate at EUR 6.0m.

Expectations of a better year in 2021
We do not expect a dividend distribution for FY2020. Although the company’s cash flows have improved clearly through divestments and financial measures taken, the company still has a rather strained balance sheet given current operating cash flows. The guidance for 2021 will be of key interest, as SRV has previously communicated intentions to restore the operative operating profit in 2021 to levels seen in 2017 (EUR 27.0m). SRV will also release its updated strategy and financial targets in conjunction with the Q4 results.

BUY with a target price of EUR 0.64
Apart from the changes to the Investments segment’s balance sheet item changes, our estimates remain intact. We retain our BUY-rating and target price of EUR 0.64.

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