SRV - Just lacks demand
SRV’s Q3 profitability reflected current lower volumes and lack of revenue from other than contracting projects. Market recovery remains slow, and the order backlog development and lack of new developer contracted projects pushes upside all the more towards 2027.
Volumes and sales mix limit profitability
SRV reported slightly weaker than expected Q3 results. Net sales were in line with our expectations, at EUR 159.7m (Evli 163.4m), but the operative operating profit of EUR 1.3m fell below our estimates (Evli EUR 3.4m). Profitability was affected by lower volumes and recognized revenue being almost exclusively based on contracting. Order intake of EUR 150.1m was decent, and the order backlog development was flat q/q, at EUR 931m. Operating cash flow remained at good levels, driven by received advances, with the trend very likely to reverse in the near future. The guidance revision (2025 net sales EUR 630-680m -> 650-680m) was fairly trivial, with our pre-Q3 estimates near the new guidance mid-point.
Current pipeline provides limited support for 2026
SRV hinted to a review of its current strategy and financial targets. The strategy is unlikely to change notably, but the current financial target timeline is in the prevailing market environment essentially unachievable and will likely be adjusted. Although positive signs of recovery are in the air, sector forecasts indicate continued near-term slowness. For SRV increased demand for housing construction is essential to enable more notable margin potential. With the anticipated market recovery pace and no new developer contracting start-ups after Q1, we have lowered our housing construction estimates. We still expect a substantial improvement in 2026 from this year’s low levels mainly through current, on-going developer contracted housing unit construction and unsold units. As a result, our 2026e EBIT estimate is down some 30% to EUR 9.8m.
REDUCE with a target price of EUR 4.8 (5.0)
With the revisions to our estimates, we lower our target price to EUR 4.8 (5.0) and reiterate our REDUCE-rating. Upside resides primarily on market conditions improving faster than we have anticipated, but is tilted towards 2027 given construction times.