Consti |

Finland's largest renovation services company

| Finland

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Financial overview

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Consti - Upgrade to BUY

27.07.2020 | Company update

Consti’s Q2 operating profit of EUR 2.4m was better than expected (Evli/cons. 1.8m/1.4m) and free cash flow and financial position improved clearly. The coronavirus pandemic has and will have some impact on demand in 2020 but the long-term demand situation remains favourable and the company now appears to be in good shape after recent year challenges. We upgrade our rating to BUY (HOLD) with a target price of EUR 10.0 (7.4).

Q2 profitability better than expected
Consti’s Q2 results were better than expected, as although the revenue of EUR 69.3m came in around expectations (Evli/cons. 68.5m/70.3m), the operating profit of EUR 2.4m clearly exceeded expectations (Evli/cons. EUR 1.8m/1.4m). The order intake in the quarter was also favourable, with new orders of EUR 66.8m, and the order backlog continued on a slight upwards trend since the end of 2019. Free cash flow in the quarter (EUR 8.1m) was exceptionally strong, boosting the rolling 12-month cash conversion ratio to 133.5%. As a result, net debt excl. IFRS 16 improved to EUR 8.3m (2019: 15.3m).

Company in good shape after previous year challenges
Consti’s Q2 report was clearly positive and following measures taken during the past years and management comments the company now appears to be in good shape. We expect sales to continue to decline y/y in H2 due to stricter bidding discipline but for profitability to continue to improve as a result of the healthier order backlog. The coronavirus pandemic has and will in our view have a slight impact on the demand situation during the year, but long-term demand drivers remain intact.

BUY (HOLD) with a target price of EUR 10.0 (7.4)
We have raised our 2020 EBIT estimate by 10% and slightly raised our 2021-2022 profitability estimates. With the higher profitability as well as cash flow and net debt improvements, possible near-term risks from the coronavirus pandemic and St. George arbitration proceedings are reduced. We raise our target price to EUR 10.0 (7.4) and upgrade our rating to BUY (HOLD).

Consti - Profitability beats expectations

24.07.2020 | Earnings Flash

Consti's net sales in Q2 amounted to EUR 69.3m, in line with our estimates and consensus (EUR 68.5m/70.3m Evli/cons.). EBIT amounted to EUR 2.4m, above our and consensus estimates (EUR 1.8m/1.4m Evli/cons.). Free cash flow improved to a solid EUR 8.1m (Q2/19: EUR 2.7m).

  • Net sales in Q2 were EUR 69.3m (EUR 81.2m in Q2/19), in line with our estimates and consensus estimates (EUR 68.5m/70.3m Evli/Cons.). Sales declined -14.7 % y/y.
  • Operating profit in Q2 amounted to EUR 2.4m (EUR 0.1m in Q2/19), above our estimates and consensus estimates (EUR 1.8m/1.4m Evli/cons.), at a margin of 3.4 %.
  • EPS in Q2 amounted to EUR 0.21 (EUR -0.04 in Q2/19), above our estimates and consensus estimates (EUR 0.14/0.11 Evli/cons.).
  • The order backlog in Q2 was EUR 211.8m (EUR 226.8m in Q2/19), down by -6.6 %. Order intake EUR 66.8m in Q2 (Q2/19: EUR 57.4m).
  • Free cash flow improved to EUR 8.1m (Q2/19: EUR 2.7m) driven by profitability improvement and release of working capital.
  • The corona pandemic had a limited impact, with worksites remaining open in all business areas. Short-term uncertainty in renovation demand outlook due to the possible moving forward of some projects in the negotiation stage.
  • Guidance reiterated: The Company estimates that its operating result for 2020 will improve compared to 2019.

Consti - Eyes on the demand situation

21.07.2020 | Preview

Consti will report Q2 results on July 24th. As the direct impacts of the Coronavirus pandemic have been limited, we expect profitability to have remained at a good level and clearly above the weak comparison period. The order backlog will remain of support for the quarter while a thinness in demand may start to show during the latter half of the year. We retain our HOLD-rating and adjust our target price to EUR 7.4 (7.0).

Limited direct pandemic impact to support profitability
Consti continued on a track of improved profitability in Q1 and we do not expect any major deviations from that trend. The direct impacts of the Coronavirus pandemic on the second quarter results are expected to be limited, as on-going worksites have to our understanding been able to operate without significant interruptions. We expect EBIT to improve clearly from the weak comparison period (Q2/2019: EUR 0.1m), which was affected by certain weak-margin projects, to EUR 1.8m in Q2/2020. We expect a revenue of EUR 68.5m, a decline of 15.7% y/y, as a result of the weakened order backlog from more disciplined bidding procedures.

Short-term demand thinness to be expected
Going forward, we expect our main attention to be pointing toward the overall demand situation. Given the timing of the housing company General Meeting season, decision-making for certain renovation projects will have been delayed to the fall or possibly next year. Decisions of corporations will possibly also have been affected while the public sector should have been less affected. The renovation sector fundamentals, however, remain unaffected and the impact should as such be of more temporary nature.

HOLD with a target price of EUR 7.4 (7.0)
Our estimates remain unchanged ahead of the Q2 results. Following lower COVID-19 uncertainty and increases in peer multiples we adjust our target price to EUR 7.4 (7.0) and retain our HOLD-rating.

Consti - Order backlog declines showing

30.04.2020 | Company update

Consti’s Q1 revenue declined more than expected (Act./Evli EUR 59.0m/64.7m), while EBIT was below our overly optimistic estimates (Act./Evli EUR 0.5m/1.9m). The impact of COVID-19 has been limited, some headwind is seen in new projects. We adjust our TP to EUR 7.0 (7.2), HOLD-rating remains intact.

Below our optimistic estimates, good cash conversion
Consti’s Q1 results were below estimates but quite in line with company expectations. Revenue declined more than expected, 19.7% y/y, to EUR 59.0m (EUR 64.7m/67.9m Evli/cons.). EBIT was below our estimates as a result of the lower revenue and admittedly also our overly optimistic estimates, at EUR 0.5m (EUR 1.9m/0.4m Evli/cons.). Conti’s cash conversion remained solid (LTM cash conversion ratio 105.7%) and free cash flow amounted to EUR 2.0m. The order intake development was positive and amounted to EUR 62.1m, with the order backlog at EUR 202.2m (-14.9% y/y).

Some headwind seen in new projects
We have lowered our estimates based on the perceived new revenue level after the high volumes in 2019 and Q1 figures. We now expect revenue of EUR 271.9m (prev. 282.3m) and EBIT of EUR 7.6m (prev. 10.1m) in 2020E. The coronavirus pandemic has so far had a limited impact on Consti, as worksites have been able to be kept open. Negotiations for new renovation projects have been successful, for instance a EUR 11.3m school renovation project. Some projects in the negotiation stage have however been cancelled and the start of some projects have been postponed. Our estimates currently only include a limited impact of the pandemic.

HOLD with a target price of EUR 7.0 (7.2)
On our revised estimates we adjust our target price to EUR 7.0 (7.2), valuing Consti at ~10x 2020E EV/EBIT, and retain our HOLD-rating. Uncertainty is elevated by the pandemic and the St. George arbitration proceedings, which saw the time limit for delivering the final arbitration award extended to June 2021.

Consti - Lower revenue drives estimates miss

29.04.2020 | Earnings Flash

Consti's net sales in Q1 amounted to EUR 59.0m, below our estimates and below consensus (EUR 64.7m/67.9m Evli/cons.). EBIT amounted to EUR 0.5m, below our estimates but in line with consensus (EUR 1.9m/0.4m Evli/cons.). Uncertainty has increased as a result of the coronavirus pandemic, but impact so far limited.

  • Net sales in Q1 were EUR 59.0m (EUR 73.5m in Q1/19), below our estimates and consensus estimates (EUR 64.7m/67.9m Evli/Cons.). Growth in Q1 amounted to 19.7 % y/y.
  • Operating profit in Q1 amounted to EUR 0.5m (EUR 0.4m in Q1/19), below our estimates and in line with consensus estimates (EUR 1.9m/0.4m Evli/cons.), at a margin of 0.8 %.
  • EPS in Q1 amounted to EUR 0.01 (EUR -0.08 in Q1/19), below our estimates and in line with consensus estimates (EUR 0.15/0.00 Evli/cons.).
  • Free cash flow EUR 2.0 (Q1/19: EUR -3.5m)
  • The order backlog in Q1 was EUR 202.2m (EUR 237.8m in Q1/19), down by -15 %. Order intake in the quarter amounted to EUR 62.1m (Q1/19: EUR 73.5m)
  • Uncertainty has increased as a result of the coronavirus pandemic, but impact so far limited. Worksites have remained open in all operational areas. Some projects in the negotiation stage have been cancelled, and the start of some projects that were at the contractual stage has been moved forward.
  • Guidance reiterated: The Company estimates that its operating result for 2020 will improve compared to 2019.

Consti - COVID-induced uncertainty

23.04.2020 | Preview

Consti will report Q1 results on April 29th. We expect a third consecutive quarter of healthier profitability, while the points of interest will be less on Q1 financials and more on comments on any impact of the Coronavirus pandemic and order backlog development. Our estimates overall remain intact for now. With the added uncertainty we adjust our target price to EUR 7.2 (8.0) and retain our HOLD-rating.

Profitability expected to have remained at healthier levels
With the on-going Coronavirus pandemic, the Q1 financials will be of lesser interest, as we expect that Consti should have been able to post a third consecutive quarter of healthier profitability. Our Q1 revenue and EBIT estimates are at EUR 64.7m and EUR 1.9m respectively. Of key interest in the Q1 report will be any comments regarding the possible impacts of the Coronavirus pandemic and order backlog development. The renovation sector in general is less prone to near-term shocks due to lengthier orders but the coinciding housing company General Meeting season could affect order backlog development and revenue later on in the year.

Sales decline 2020E, additional risk from COVID-19
Our estimates on annual basis remain largely intact for now. We expect a 10.3% decline in 2020 revenue based on completion of larger projects in 2019 and the order backlog development. We expect EBIT to improve to EUR 10.7m (2019: 4.6m) as profitability burdening projects have been completed. The Coronavirus pandemic poses a risk to our estimates through plausible project delays and potential supply chain problems, dependent also on the general economic impact, but we still see fundamental drivers in place and a slow-down in new construction volumes due to the pandemic could benefit renovation construction.

HOLD with a target price of EUR 7.2 (8.0)
Our estimates remain largely intact for now in awaiting the Q1 results, but with the elevated risk level we adjust our target price to EUR 7.2 (8.0), with our HOLD-rating intact.

Consti - Margin recovery progressing well

10.02.2020 | Company update

Consti’s Q4 results were quite in line with our estimates, with net sales at EUR 78.3m (Evli EUR 80.9m) and operating profit at EUR 2.8m (Evli EUR 3.0m). We expect sales to decline around 10% in 2020 due to continued weak order backlog development. The new organization along with the related cost savings should absorb the expected lower volumes and we continue to expect clear earnings improvement. We retain our HOLD-rating with a target price of EUR 8.0 (7.0).

Q4 results largely in line, order backlog continued decline

Consti’s Q4 results were quite in line with our estimates. Net sales amounted to EUR 78.3m (Evli EUR 80.9m) and operating profit to EUR 2.8m (Evli EUR 3.0m). Profitability was still slightly affected by the project that had a significant negative impact on H1/19 profitability. Consti’s BoD proposes a dividend of EUR 0.16 per share (Evli 0.17). The order backlog continued to decline and was down 17.4% y/y at EUR 186m.

Expecting sales declines but clear profitability improvement

Following the continued weak order backlog we have lowered our coming year sales estimates by some 10% and now expect a 9.8% net sales decline in 2020. We expect Consti to be able to absorb the volume declines without major margin pressure due to the new organization and related cost savings. We have slightly raised our 2020 EBIT estimate, now expecting an EBIT of EUR 10.7m. The Q4 results in our view provided continued support for the sustainability of Consti’s successful profitability turnaround.

HOLD with a target price of EUR 8.0 (7.0)

On our slightly raised earnings estimates and increased confidence in the profitability turnaround, we adjust our TP to EUR 8.0 (7.0), valuing Consti at ~7.5x 2020E EV/EBIT, with the Hotel St. George arbitration proceeding still warranting the clear discount to peers. We retain our HOLD-rating.

Consti - Quite in line with our expectations

07.02.2020 | Earnings Flash

Consti's net sales in Q4 amounted to EUR 78.3m, in line with our estimates and below consensus (EUR 80.9m/86.0m Evli/cons.). EBIT amounted to EUR 2.8m, slightly below our and consensus estimates (EUR 3.0m/3.0m Evli/cons.). Dividend proposal: Consti proposes a dividend of EUR 0.16 per share (EUR 0.17/0.17 Evli/Cons.). Guidance: the operating result for 2020 will improve compared to 2019.

  • Net sales in Q4 were EUR 78.3m (EUR 96.8m in Q4/18), in line with our estimates and below consensus estimates (EUR 80.9m/86.0m Evli/Cons.). Growth in Q4 amounted to -19.2 % y/y.
  • Operating profit in Q4 amounted to EUR 2.8m (EUR -2.2m in Q4/18), slightly below our estimates and consensus estimates (EUR 3.0m/3.0m Evli/cons.), at a margin of 3.6 %.
  • EPS in Q4 amounted to EUR 0.25 (EUR -0.25 in Q4/18), slightly below our estimates and consensus estimates (EUR 0.26/0.26 Evli/cons.).
  • The free cash flow in Q4 was EUR 5.1m (Q4/18: 1.9m) and EUR 4.0m in 2019 (2018: EUR -7.1m)
  • The order backlog in Q4 was EUR 185.8m (EUR 225.1m in Q4/18), down by -17.5 %. Q4/19 order intake amounted to EUR 46.8m.
  • Dividend proposal: Consti proposes a dividend of EUR 0.16 per share (EUR 0.17/0.17 Evli/Cons.).
  • Guidance: the operating result for 2020 will improve compared to 2019.
  • Consti updated its financial targets. Consti now expects revenue growth at above the market pace (previously: average growth exceeding 10% p.a.), while other targets remain unchanged.

Consti - Downgrade to HOLD

29.01.2020 | Preview

Consti will report Q4 earnings on February 7th. We expect to see the favourable profitability development trend from Q3 to continue but for revenue to decline from the strong comparison period. Apart from margin development, the order intake will be of key interest following order backlog declines during 2019. Following a near 50% share price increase since our previous update we downgrade to HOLD (BUY) with a target price of EUR 7.0 (5.8).

Expect continued positive profitability development trend

Consti’s Q3 saw profitability improve substantially, following a lengthy period of weaker profitability, affected in particular by a few large renovation projects. With some older projects still having an impact on Q3, we expect profitability to improve q/q and estimate a EUR 3.0m operating profit in Q4. We expect revenue to decline some 16% from the strong comparison period following the completion of some larger renovation projects and estimate a revenue of EUR 80.9m.

Profitability to improve in 2020, sales growth unlikely

Consti has in recent years typically given a rather vague guidance and not guided revenue development and we expect a likely guidance to reflect a higher operating profit in 2020 compared to 2019. Based on the weak H1/19 we expect a clear improvement in profitability in 2020 and the operating profit margin to improve from 1.5% in 2019E to 3.3% in 2020E. The sales growth outlook for 2020 remains unfavourable based on the order backlog development. We currently estimate only a minor decline of 1.7% in awaiting details on Q4 order intake.

HOLD (BUY) with a target price of EUR 7.0 (5.8)

Consti’s share price has increased near 50% since our previous update. We are prepared to accept part of the increase following concurrent smaller peer multiple increases and although valuation compared to peers remains attractive, with the still limited proof of sustainable profitability improvement and the on-going St. George arbitration proceedings we downgrade to HOLD (BUY) with a target price of EUR 7.0 (5.8).

Consti - Upgrade to BUY

28.10.2019 | Company update

Consti posted good Q3 results, showing clearly positive profitability figures again after four consecutive weak quarters. Although some open risks still exist in older projects, the stricter bidding procedures, the new organizational structure and lack of new significant negative impact projects supports continued healthy profitability. Going forward the order backlog development will be of larger interest and the Q3 development has prompted us to expect sales declines in 2020.

Clear profitability improvement

Consti’s Q3 saw profitability returning back on a healthier track, with EBIT of EUR 2.1m (Evli 2.2m). The improvement in profitability (Q3/18: -1.4m) was due to a clearly smaller impact of old projects in the discontinued housing repair unit, which however still did have an impact. Net sales growth was better than we have expected, growing 3.7% y/y to EUR 81.8m (Evli 79.5m). The order backlog development remained rather weak, amounting to EUR 206.8m in Q3, down -23.6% y/y. The decline has been affected by stricter bidding procedures, but also to some degree by a tie-up of resources in larger projects.

Order backlog development speaks for 2020 sales decline

We have lowered our net sales estimates post-Q3, now expecting a sales decline in 2020 of ~5%. Our current estimate appears rather generous given the order backlog development. More clarity will be given by order intake during Q4/19-Q1/20, the quarters in which intake has typically been strongest. In our view the freeing up of resources, improved profitability and the progression of the organizational structure development speak for the potential for improving order intake. Our bottom-line estimates remain largely intact.

BUY (HOLD) with a TP of EUR 5.8 (5.4)

The signs of profitability improvement alleviate some of the uncertainty pressure, although risks still remain. Nonetheless, valuation still appears attractive and we raise our target price to EUR 5.8 (5.4) and upgrade to BUY (HOLD).

Consti - Profitability back at healthier levels

25.10.2019 | Earnings Flash

Consti's net sales in Q3 amounted to EUR 81.8m, slightly above our and consensus estimates (Evli/cons. EUR 79.5m). EBIT amounted to EUR 2.1m, in line with our estimates and above consensus (Evli/cons. EUR 2.2m/1.6m). The negative impact of certain projects on profitability was clearly smaller than at the beginning of the year, contributing to the clear improvement in profitability.

  • Net sales in Q3 amounted EUR 81.8m (EUR 78.9m in Q3/18), slightly above our estimates (Evli EUR 79.5m). Growth in Q3 amounted to 3.7 % y/y. Net sales development was still supported by sustained high volumes of large comprehensive renovation projects in Q3.
  • Operating profit in Q3 amounted to EUR 2.1m (EUR 0.1m in Q3/18), in line with our estimates (Evli EUR 2.2m), at a margin of 2.6 %. The profitability was still affected by old projects of the already discontinued housing repair unit, but the impact was clearly smaller than at the beginning of the year. All business areas were profitable in the third quarter
  • The order backlog in Q3 was EUR 206.4m (EUR 270.0m in Q3/18), down by 23.6 %. The order intake amounted to EUR 37.0m, down 5.7% y/y, reflecting the company’s more disciplined bidding procedures.
  • Guidance reiterated: The Company estimates that its operating result for 2019 will improve compared to 2018.

Consti - Careful optimism amid continued uncertainty

21.10.2019 | Preview

Consti will report Q3 earnings on October 25th. We expect to see improved profitability and a better indication of underlying profitability, although risks related to the earnings improvements still remain at elevated levels given the project impact on Q2/19 profitability. The order backlog development is also of key interest. The negative impact of stricter bidding procedures on the order backlog poses a considerable risk of sales declines in 2020, in our view, without improvements in order intake during H2/19.

Expect profitability improvement but risks still present

During the first half of 2019 Consti’s profitability was materially affected by performance obligations relating to an individual building purpose modification project, which at the end of Q2/19 was essentially completed. Although the project still poses a risk to our estimated profitability improvement in Q3 (Evli EUR 2.2m, Q3/18 EUR -1.4m), of more long-term importance would be the absence of new, large profitability burdening projects in Q3, which is supported by the company’s more selective bidding procedures for larger projects.

Order backlog development of interest

A downside of the stricter bidding procedures has been a weaker development of the order backlog, which at the end of Q2/19 was down 21% y/y, at EUR 227m. Sales growth in 2019 remains supported by a more rapid order backlog conversion while a continued weaker order intake during H2/19 would impose a risk of sales declines in 2020. We expect focus in the second half of 2019 to remain on continued development of the organizational structure and cost savings.

HOLD with a target price of EUR 5.4 (5.8)

Compared to peer multiples, on our estimates valuation is in no way particularly challenging, especially when looking at 2020. However, due to the profitability challenges and the St. George arbitration proceedings the near-term uncertainty continues to remain high and signs of stabilizing profitability in Q3 would be needed. We retain our HOLD-rating with a TP of EUR 5.4 (5.8).

Consti - Earnings visibility still an issue

29.07.2019 | Company update

Consti’s Q2 results were slightly weaker than expected, as the EBIT of EUR 0.1m fell below our estimates (Evli 0.6m), further impacted by an individual building purpose modification project. The order backlog development raises some concerns for near-term sales growth, but our eyes are still on profitability improvements.

Project burden still visible in profitability

Consti’s Q2 results fell slightly short of our expectations. Profitability was as expected further burdened by the impact of an individual building purpose modification project, but EBIT in Q2 was still weaker than anticipated, at EUR 0.1m (Evli EUR 0.6m). The revenue of EUR 81.2m was in line with our estimates (Evli EUR 81.3m), aided by the completion of certain larger projects. The order backlog of EUR 227m was down 20.8% y/y due to the high sales and lower orders received.

Order backlog raises some concerns for sales growth

We have made slight revisions to our estimates, mainly to near-term net sales estimates. Consti’s order backlog and orders received development has in our view been relatively meager during H1/19, which coupled with the continued sales growth during H1 opens up some concern for sales development in 2020. We have lowered our 2019-2021E sales CAGR estimate to 1%, with essentially flat growth in 2020. Due to the past profitability challenges we do not however see sales growth as a primary concern and see that Consti’s near-term focus will remain on improving profitability. We expect a notable increase in profitability during H2/19, as the project that burdened H1 is expected to be completed and expect 2019 EBIT of EUR 5.2m.

HOLD with a TP of EUR 5.80

Consti trades below peers, in particular on 2020 estimates when earnings are expected to rebound. Although profitability according to Consti has remained at good levels, when excluding the profitability burdening large projects, we see that weak visibility in the underlying profitability still warrants caution and retain our HOLD-rating with a target price of EUR 5.80.

Consti - Earnings remain weaker

26.07.2019 | Earnings Flash

Consti's net sales in Q2 amounted to EUR 81.2m, in line with our estimates (Evli EUR 81.3m). EBIT amounted to EUR 0.1m, below our estimates (Evli EUR 0.6m). Profitability continued to be affected by performance obligations of a single building purpose modification project.

  • Net sales in Q2 were EUR 81.2m (EUR 77.8m in Q2/18), in line with our estimates (Evli EUR 81.3m). Growth in Q2 amounted to 4.4 % y/y. Growth was aided by an increase in volume of large comprehensive renovation projects.
  • Operating profit in Q2 amounted to EUR 0.1m (EUR 1.7m in Q2/18), below our estimates (Evli EUR 0.6m), at a margin of 0.1 %. The profitability was still burdened by remaining performance obligations of an individual building purpose modification project, that was essentially completed by the end of Q2/19. The impact was included in our estimates but was larger than anticipated.
  • The order backlog in Q2 was EUR 227m (EUR 286m in Q2/18), down by 20.8 %. The order intake amounted to EUR 57.4m, down 35.2% y/y, reflecting the company’s more disciplined bidding procedures.
  • Guidance reiterated: The Company estimates that its operating result for 2019 will improve compared to 2018.

Consti - Expecting weaker earnings quarter

19.07.2019 | Preview

Consti will report Q2/19 earnings on July 26th. A key uncertainty factor still remains any potential profitability impacts of the building purpose modification project that affected Q1 earnings. With the project having been on-going still post-Q1 we remain conservative in our profitability estimates but still expect Q2 EBIT to be slightly positive, at EUR 0.6m, and net sales at EUR 81.3m. We retain our HOLD rating with a target price of EUR 5.8 (6.0).

Expect project burden impact on Q2 earnings

Consti’s Q1 EBIT was barely negative, at EUR -0.4m, due to performance obligations of an individual building purpose modification project. As the project has been on-going also during Q2, we expect a continued negative impact on profitability. We estimate a Q2 EBIT of EUR 0.6m. We expect slight y/y sales growth to EUR 81.3m. Although the order backlog declined slightly in Q1 sales remain supported by strong Q1 growth and order intake as well as an expected faster order backlog conversion.

Risk levels still highish but declining

Consti has in our view been showing signs of lower project pipeline risks after having struggled with project management issues since the latter half of 2017. H1/19 has seen the completion and near or expected completion of several significant projects. The share of more demanding building purpose modification projects in the order backlog has also decreased. The likelihood of new major surprises in our view is declining, while we note that the arbitration proceedings relating to the St. George project are still on-going.

HOLD with a target price of EUR 5.8 (6.0)

Consti trades at a discount to its peers, which we consider partly justifiable given profitability challenges and a still weaker near-term earnings visibility. We retain our HOLD rating with a target price of EUR 5.8 (6.0).

Consti - Single project still causing troubles

29.04.2019 | Company update

Consti’s Q1 saw good sales growth of 18%, while performance obligations relating to a building purpose modification project kept earnings in the red, with a Q1 EBIT of EUR -0.4m. With the project still on-going the earnings outlook for 2019 continues to appear somewhat meagre, despite otherwise decent profitability development.

Solid sales growth but earnings still slightly negative

Consti’s first quarter revenue beat expectations, growing 18.0% y/y to EUR 73.5m supported by strong sales growth in Housing Companies. Profitability only just remained negative, with EBIT at EUR -0.4m, with remaining performance obligations relating to a building purpose modification project still affecting results. Pick up in order intake compared to H2/18 aided in pushing the order backlog to a healthy EUR 237.8m. Stricter tendering criteria in Building Technology continued to weigh in on revenue and order backlog but management considers the quality of the order backlog to have improved.

On-going project still casting a shadow on 2019 earnings

With the good growth in Q1 we adjust our 2019 revenue estimate to EUR 337m (prev. EUR 324.1m) while the stagnant order backlog development prompts us to remain cautious on growth in the mid-term. We expect growth above all in the Housing Companies and Public Sector business areas. With the profitability burdening building purpose modification project still on-going (expected completion during Q2/19) we lower our Q2 EBIT estimates while keeping our H2/19 estimates intact for a 2019 EBIT estimate of EUR 5.9m (prev. EUR 7.1m).

HOLD with a target price of EUR 6.0

On our estimates Consti trades in line with the construction company peer group on 2019E P/E but on a significant discount on 2020E multiples. With the profitability burdening on-going obligations and uncertainties relating to Consti’s earnings capacity under a healthier project pipeline, without major negative margin projects, we retain our HOLD-rating with a target price of EUR 6.0

Consti - EBIT still slightly negative

26.04.2019 | Earnings Flash

Consti’s Q1 EBIT was in line with consensus but slightly below our estimates, at EUR -0.4m (EUR 0.1m/-0.3m Evli/cons.). Consti’s Q1 revenue of EUR 73.5m beat both our and consensus estimates (EUR 64.4m/62.4m Evli/cons.). Consti’s order backlog amounted to EUR 237.8m.

  • Net sales in Q1 amounted to EUR 73.5m (EUR 62.3m in Q1/18), beating both our and consensus estimates (EUR 64.4m/62.4m Evli/cons.). Sales growth in Q1 was 18.0 % y/y.
  • EBIT in Q1 amounted to EUR -0.4m (EUR -0.2m in Q1/18), slightly below our estimates but in line with consensus (EUR 0.1m/-0.3m Evli/cons.). EBIT remained negative due to performance obligations relating to a building purpose modification project while profitability development otherwise was mainly positive.
  • The order backlog at the end of Q1 was EUR 237.8m, down 5.0 % y/y.
  • Guidance reiterated: Consti estimates that its operating result for 2019 will improve compared to 2018.

Consti - Time to regain profitability

29.03.2019 | Company report

Consti has had project management related issues, which has dented earnings during the past year, and has been taking measures to improve profitability. We expect margin recovery, although risks to future earnings still remain. We downgrade to HOLD (BUY) with a target price of EUR 6.0.

Leading renovation company seeking to regain profitability

Consti is a market leader in the less cyclical Finnish renovation market, where the demand outlook remains good due to among other things an ageing building stock. Consti’s performance has during the past years however been hampered by internal project management and execution related issues, which has left a dent in profitability. Consti has been implementing changes towards a more customer-centric organization and to increase operational efficiency, expected to also aid profitability through cost-savings.

Expecting margin recovery

We expect Consti’s focus to be on improving margins and as such estimate only slight sales growth for the coming years, with our estimated 2018-2021E sales CAGR at 2.2%. Sales growth has been affected by the implementation of stricter tendering criteria, which we expect to continue to have an effect, but on the other hand has a reductive effect on possible further unprofitable projects. A larger share of the unprofitable projects have been completed but open risks still remain. We expect profitability to be supported by a lesser impact of the unprofitable projects along with an alleviation of the pressure from subcontractors and suppliers following boom years in building construction volumes. Our EBIT-margin estimate for 2019E is 2.2%.

HOLD (BUY) with a target price of EUR 6.0

Consti trades at a 22%/31% discount on 2019E EV/EBIT to our mainly Nordic construction and building installations and services peer groups. With and elevated risk profile due to internal project management issues and the on-going arbitration proceedings in the Hotel St. George project we consider a discount justifiable. We value Consti at 9.2x 2019E EV/EBIT for a target price of EUR 6.0 and downgrade to HOLD (BUY).

Consti - Upgrade to BUY

08.02.2019 | Company update

Consti’s Q4 EBIT remained negative in Q4 at EUR -2.2m, impacted further by the impact of a building purpose modification project. Consti initiated a program to improve profitability and is also renewing it segment reporting. Consti expects the operating profitability to improve in 2019 compared to 2018. We upgrade to BUY (HOLD) with a TP of EUR 6.0

Renewing segment reporting

Consti’s Q4 results were further burdened by costs relating to a demanding building purpose modification project and EBIT was negative at EUR -2.2m, below our expectations (Evli EUR -1.0m). Consti estimates that its operating result for 2019 will compared to 2018 (EUR -2.1m). Consti launched a program to improve profitability and will renew its segment reporting with the intention of moving towards a customer-oriented organisation structure. The current segments will be re-organised into customer specific business areas, which is intended to among other things benefit in sales by offering a larger part of the relevant services from one entity. The program’s costs are estimated at approx. EUR 0.5m with the aim of achieving savings of EUR 2m from 2020 onwards.

Estimates mainly intact post-Q4

Our earnings estimates remain mainly intact post-Q4, with our sales estimates up by some 3%. We continue to expect profitability improvements in 2019 as the effects of the projects that impacted 2018 diminishes, although we note that risks related to the projects are not all resolved. We further expect the slow-down in new construction to alleviate some of the supply chain pressure and enable margin improvement.

BUY (HOLD) with a TP of EUR 6.0

On our estimates Consti trades at a 33%/28% discount on 2019E EV/EBITDA and EV/EBIT. We note that there are risks associated with our estimated profitability improvement, but we see the measures taken during recent years, including among other things stricter tendering processes, to support profitability. We upgrade to BUY (HOLD) with a target price of EUR 6.0.

Consti - Revenue beat, earnings below expectations

07.02.2019 | Earnings Flash

Consti’s EBIT was below expectations, at EUR -2.2m (EUR -1.0m/-1.3m Evli/cons.), while Q4 revenue of EUR 96.8m was higher than expected (EUR 87.0m/87.8m Evli/cons.). Consti estimates that its operating result for 2019 will improve compared to 2018. The BoD proposes that no dividend be paid.

  • Net sales in Q4 amounted to EUR 96.8m (EUR 86.3m in Q/17), beating both our and consensus estimates (EUR 87.0m/87.8m Evli/cons.). Sales growth in Q4 was 12.1 % y/y.
  • EBIT in Q4 was EUR -2.2 (EUR -2.6m in Q4/17), falling below both our and consensus estimates (EUR -1.0m/-1.3m Evli/cons.). EBIT was negative due to weaker than expected profitability in the housing repair unit included in the Building Facades business area.
  • Technical Building Services: Net sales in Q4 were EUR 31.0m vs. EUR 30.1m Evli.
  • Renovation Contracting: Net sales in Q4 were EUR 28.5m vs. EUR 24.1m Evli.
  • Building Facades: Net sales in Q4 were EUR 42.5m vs. EUR 36.8m Evli.
  • Order backlog at the end of Q4 was EUR 225m, down 0.3 % y/y.
  • Guidance: Consti estimates that its operating result for 2019 will improve compared to 2018.
  • Dividend: Consti’s BoD proposes that no dividend be paid for 2018 (Evli/cons. expectation no dividend)
  • Consti announced the initiation of a cost savings program with a target of EUR 2m annual savings, expected to be achieved by 2020.

Consti - 2018 earnings to be in the red

15.01.2019 | Preview

Consti issued a profit warning, expecting the operating result for 2018 to be negative and decline compared to 2017. The profitability in Q4 will be burdened by higher than expected costs of a building purpose modification project. We expect EBIT of EUR -1.0m (prev. 1.5m) in 2018. We do not expect Consti to distribute dividends for FY 2018. We retain our HOLD-rating with a target price of EUR 6.0 (7.5).

Lowered guidance

Consti lowered its guidance, now expecting the operating result to be negative and decline (prev. grow) compared to 2017, when the operating result was EUR -0.4m. Consti’s Q4 results will be negative due to weaker than expected profitability in the housing repair unit included in the Building Facades business area. The profitability issues relate to higher than expected costs of a building purpose modification project. The project will be finalized during H1/2019.

2018E EBIT EUR -1.0m (1.5m)

We have cut our Q4 profitability estimates, with both our Q4/18 and 2018E EBIT estimates now at EUR -1.0m (prev. 1.5m). Due to the weaker result we have revised our dividend estimate and do not expect Consti to distribute dividends for FY 2018. We have cut our 2019E EBIT estimate and now expect EBIT of EUR 7.0m (8.7m). We anticipate further profitability impacts of the building purpose modification project during 2019E but continue to expect notable profitability improvements as the projects that have burdened profitability are completed.

HOLD with a target price of EUR 6.0 (7.5)

On our estimates Consti trades at a 2019E EV/EBIT of 8.4x, at a ~10/20 % discount to the Construction peers and Building Installations and Services peers. Given the profitability challenges and weaker visibility into near-term profitability we see the discount as justified and retain our HOLD-rating with a target price of EUR 6.0 (7.5).

Consti - Profitability remains a concern

29.10.2018 | Company update

Consti’s third quarter results were affected by lower profitability in a limited number of projects, with group EBIT at EUR -1.4m. The weaker profitability was largely related to electrical installations and project delays leading to additional costs from catching up with timetables and in our view of more temporary nature. Sales growth continued at a slower pace, as Consti has tightened tendering criteria. We retain our HOLD-rating with a target price of EUR 7.5 (8.2).

A fraction of projects driving weak profitability

Consti’s third quarter EBIT was EUR -1.4m, affected by lower than expected profitability in project deliveries of the technical installations business included in the Technical Building Services business area and the housing repair business included in the Building Facades business area. The problems related largely to electrical installations and projects being delayed, resulting in additional catch up costs. The issues concern a limited number of projects, of which most will be completed during 2018. The profitability issues in our view are more of a temporary nature. Of some concern is the communication between worksites and management, as the problems appear to have come as a complete surprise.

Seeking to further tighten project tendering criteria

Consti’s Q3 sales growth continued at a slower pace, at 1.4 % y/y, as Consti has been tightening project tendering criteria. Consti will also continue to tighten criteria, with building purpose modification projects being one area under scrutiny, having seen a EUR 4.0m negative impact from two such projects during 2018.

HOLD with a target price of EUR 7.5 (8.2)

Our estimates post-Q3 remain unchanged. We remain conservative on Q4 profitability due to the project issues but see potential for notable improvement. We retain our HOLD-rating with a target price of EUR 7.5 (8.2).

Consti - Profitability burdened by older projects

26.10.2018 | Earnings Flash

Consti had pre-announced Q3 revenue and EBIT of EUR 78.9m and EUR -1.4m respectively. Profitability was weakened by a limited number of projects launched in 2016 and 2017 within the Technical Building Services and Building facades business areas. Revenue growth continued at a slow pace, but the order backlog remains strong, at EUR 270m.

  • Consti had pre-announced Q3 revenue and EBIT on October 17th
  • Net sales in Q3 were EUR 78.9m (EUR 77.8m in Q3/17). Sales growth in Q3 was 1.4 % y/y.
  • EBIT in Q3 was EUR -1.4m (EUR -0.8m in Q3/17), at an EBIT-margin of -1.8 %. The weaker profitability concerns a limited number of projects launched in 2016 and 2017 in project deliveries within the Technical Building Services and Building Facades business areas, with the majority of projects to be completed in 2018.
  • Free cash flow was negative, at EUR -3.5m (2.9m).
  • Technical Building Services: Net sales in in Q3 were EUR 25m vs. EUR 23.9m Evli.
  • Renovation Contracting: Net sales in in Q3 were EUR 23.8m vs. EUR 22.7m Evli.
  • Building Facades: Net sales in in Q3 were EUR 34.1m vs. EUR 36.4m Evli.
  • Order backlog at EUR 270m, up 35.9 % y/y.
  • Guidance intact, Consti estimates that its operating result for 2018 will grow compared to 2017.

Consti company presentation 26092019

Consti - Company presentation

26.09.2019
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Consti company presentation 26092019

Video presentation

Company Facts

Guidance

The operating result for 2020 is estimated to improve compared to 2019

Financial targets

Growth: Average annual growth in revenue at least 10 %. Profitability: Adjusted EBIT-margin exceeding 5 %. Cash flow: Cash flow ratio exceeding 90 %. Capital Structure: Net debt to adjusted EBITDA ratio of less than 2.5x

Share price (EUR)


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