Skip to content

SRV - Leaving first unprofitable year behind

SRV’s Q4 profitability was below our expectations mainly due to additional REDI shopping centre costs. We continue to expect significant profitability improvement in 2019 but have lowered our estimates due to expected slower shopping centre development in Russia and continued higher construction costs during 2019. We retain our HOLD-rating with a TP of EUR 2.0 (2.4).

Weak profitability in Q4

SRV’s Q4 earnings fell below our estimates, with operating profit at EUR 0.1m (Evli EUR 7.8m). The operating profit was affected by EUR 11.1m additional costs from the REDI shopping centre along with an EUR 4m impairment charge in International Operations but aided by the EUR 14m capital gain of the sale of SRV Kalusto. The operational profitability in Operations in Finland, adjusted for the REDI impact, remained rather weak despite the high revenue and many completed developer-contracting housing units, affected by weaker margins in certain projects.

2019 profitability estimates lowered

SRV expects revenue to grow in 2019 compared to 2018 and the operative operating profit to improve compared to 2018 and be positive. The profitability in 2019 is expected to be affected by higher construction costs due to long-term procurement agreements. We have lowered our 2019E operative operating profit estimate to EUR 32.7m (EUR 40.2m) due to both expected lower profitability in International Operations from slower shopping centre development in Russia and Operations in Finland due to the expected higher construction costs.

HOLD with a target price of EUR 2.0 (2.4)

On our revised estimates valuation looks challenging based on peer multiples, with SRV trading at a larger premium to peers, but is still supported by our SOTP. The balance sheet remains excessive, although some EUR 90m in capital employed was released during the year and with the uncertainty regarding shopping centre divestments we retain our HOLD rating with a TP of EUR 2.0 (2.4).

Open Report