SRV - Short-term losses for long-term gains

SRV’s Q4 results were on paper rather catastrophic due to significant impairment charges relating mainly to the REDI shopping centre, with the Q4 operative operating profit at EUR -87.2m (Evli EUR 2.3m). SRV announced a series of measures to strengthen its financial position, that on a short-term perspective appear unfavourable, but will benefit SRV in the coming years. We retain our HOLD-rating with a target price of EUR 1.30.

Earnings clearly in the red due to impairment charges

SRV’s Q4 revenue amounted to EUR 403.8m (Evli 370.2m) and operative operating profit to EUR -87.2m (Evli 2.3m). Q4 included impairment charges of EUR 92.9m, relating mainly to the REDI shopping centre, as SRV has agreed to divest its ownership. Although the Q4 results on paper were rather catastrophic, construction margins (excluding one-off charges) were in fact clearly better than we had expected, supported at least partly by the higher than expected revenue.

Taking measures to improve financial situation

SRV announced a series of measures to strengthen its financial position, of which the in our view in the near-term most important include the divestment of the ownership in the REDI shopping centre and a larger part of the Tampere Deck and Arena project, which should have a near-term positive cash flow impact of some EUR 45m. The measures do not appear favourable in the short-term but are in our view a positive sign as SRV is under CEO Saku Sipola clearly looking to create a more sustainable financial situation and improve operational performance.

HOLD with a target price of EUR 1.3

Our SOTP values SRV at EUR 1.9 per share. The valuation is still highly dependent on improvement in the construction business profitability, which we have yet to see significant proof of. The financial situation is still somewhat challenging even with the measures announced and as such the investment risks remain elevated. We retain our HOLD-rating and target price of EUR 1.3

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