SRV - Good start to the year

SRV’s Q1 results were better than expected, most importantly profitability improved to healthy levels (EBIT Act./Evli EUR 4.5m/-5.1m), and order intake is showing positive development. Steps to improve the financial position continue to be of focus, COVID-induced uncertainty poses a threat to shopping centre exit plans. We retain our HOLD rating with a TP of EUR 1.1 (1.0).

Back to healthier profitability in Q1
SRV’s Q1 results were better than expected. Revenue amounted to EUR 208.1m (EUR 187.0m/198.0m Evli/cons.) and EBIT to EUR 4.5m (EUR -5.1m/-0.4m Evli/cons.). Compared to our estimates, profitability was higher mainly due to a misjudgment of FX hedging and the higher revenue. Q1 included EUR 2.1m profit margin eliminations from the sale of holdings in REDI and Tampere Deck and Arena. Overall, Q1 profitability was in our view a clear but still early positive sign of a turnaround. New orders have developed positively so far during 2020, with EUR 198m new orders in Q1.

2020 EBIT estimate raised to 14.8m (4.3m)
Apart from adjustments based on Q1 figures, our 2020 estimates are largely intact. SRV’s estimate for developer-contracted housing unit completions in 2020 was revised to 520 (586), but we had for housing construction already as a precaution to possible near-term housing market uncertainty due to the coronavirus pandemic assumed a clearly lower number of units recognized as income compared to completion guidance. Our revised 2020E estimates for revenue and EBIT are EUR 957.2m (prev. 956.2m) and EUR 14.8m (prev. EUR 4.3m).

HOLD with a target price of EUR 1.1 (1.0)
Following estimates revisions, we adjust our target price to EUR 1.1 (1.0) and retain our HOLD-rating. Q1 showed good progress on the profitability front, next steps will be the measures to improve the financial position. Received commitments support the upcoming rights issues, shopping centre exits will likely see delays due to the COVID-induced uncertainty.

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