Finland's largest renovation services company
Consti reported Q2 results that corresponded quite well with expectations. Prevailing market conditions still create some uncertainties for the end of the year but overall, the outlook is still quite positive. We retain our target price of EUR 12.0 per share and BUY-rating.
Q2 results quite as expected
Consti reported Q2 results which overall corresponded well with expectations. The prolonged winter had a small impact on net sales growth, with growth nonetheless at 3.1% y/y to EUR 73.1m (EUR 74.6m/74.7m Evli/Cons.). The operating profit amounted to EUR 2.9m (EUR 3.0m/2.9m Evli/cons.), at a margin of 4.0%. The increase in construction materials prices had a greater impact than in the comparison period in certain on-going projects and inflation increased indirect costs. The order backlog was at a quite good level of EUR 240.8m, up 1.9% y/y, with a Q2 order intake of EUR 98.7m (98.5m). The 2022 operating profit guidance of EUR 9-13m was kept intact.
Near-term uncertainty still present
We have made only smaller adjustment to our estimates, till expecting relative growth to pick up slightly during the end of the year for an overall modest full-year growth. Our 2022e operating profit estimate is slightly below the guidance mid-point, at EUR 10.4m. The near-term demand situation remains affected by current uncertainties, especially within corporate customers. The situation with construction material prices and availability still has an impact, although smaller within renovation projects. Some indications of price peaks have been seen, but the uncertainty should still most likely be present at least throughout the year.
BUY with a target price of EUR 12.0
Despite the prevailing market situation and uncertainties Consti has in our view performed well and we remain rather optimistic also for the coming quarters. Long-term drivers still remain. Compared with peers the current valuation remains quite cheap. We keep our target price of EUR 12.0 intact, rating still BUY.
Consti's net sales in Q2 amounted to EUR 73.1m, in line with our and consensus estimates (EUR 74.6m/74.7m Evli/cons.), with growth of 3.1% y/y. EBIT amounted to EUR 2.9m, in line with our and consensus estimates (EUR 3.0m/2.9m Evli/cons.). Guidance reiterated: operating result in 2022 is expected to be EUR 9-13m.
Consti saw some seasonal softness in growth in Q1. Demand and construction material uncertainty continues to have an impact, but we still see the renovation market being fairly well positioned.
Growth softness in Q1 due to long winter
Consti’s Q1 results were fairly decent compared with our estimates. Revenue development was slow due to the longer winter, with y/y growth of 0.9% to EUR 59.8m (EUR 63.3m/64.4m Evli/cons.). Profitability was still at decent levels for the seasonally slower quarter, with EBIT at EUR 0.4m (EUR 0.0m/0.4m Evli/cons.). The increase in construction materials prices had a somewhat higher impact than in the comparison period. The order backlog grew 4.4% y/y on new orders of EUR 37.6m (Q1/21: 69.8m). Consti kept its guidance intact, expecting the operating profit in 2022 to be between EUR 9-13m.
2022 estimates still largely intact
We have only minor adjustments to our 2022 estimates, having slightly lowered our growth and profitability estimates for the rest of the year, while our full year EBIT estimate is slightly up due to the earnings beat in Q1. Our 2022 estimates for revenue and adj. EBIT are now at EUR 304.5m (2021: 288.8m) and 10.7m (2021: EUR 9.5m). The market continues to be affected to some degree by construction material availability and prices, with the crisis in Ukraine having further affected the situation and created short-term uncertainty relating to new projects in the negotiation phase, but overall still does not appear to have deteriorated materially and the long-term demand drivers for the renovation market provide continued support.
BUY with a target price of EUR 12.0 (13.0)
The uncertainty relating to demand and construction material prices and availability is currently at elevated levels and has understandably led to lower valuation multiples. Consti is in our view still less prone to the shocks compared with primarily new construction focused companies. Consti currently trades below peers, which given the aforementioned appears unjustified. We adjust our TP to EUR 12.0 (13.0) and retain our BUY-rating.
Consti's net sales in Q1 amounted to EUR 59.8m, slightly below our and consensus estimates (EUR 63.3m/64.4m Evli/cons.), with growth of 0.9% y/y. EBIT amounted to EUR 0.4m, slightly above our estimates and in line with consensus (EUR 0.0m/0.4m Evli/cons.). Guidance reiterated: operating result in 2022 is expected to be EUR 9-13m.
Consti reports its Q1 results on April 29th. Concerns relating to material pricing and availability have increased due to Ukraine crisis, although Consti through its renovation focus should be less affected than constructors. We retain our BUY-rating with a TP of EUR 13.0 (14.0).
Growth picked up in H2/21 and is seen to continue
Consti reports its Q1 results on April 29th. Consti was able to turn to a clearer track of growth during H2/2021 and our expectations are for the growth to continue going into 2022. The growth was to a smaller part aided by the acquisition of RA-Urakointi Oy, specializing in renovations of apartment and row housing companies. The larger share of growth came from the improved order intake, with the order backlog up 22.9% at the end of 2021, aided also by Consti’s first projects within new construction. Profitability was to some degree affected by rising material prices, with the impact slightly larger in the latter half of the year.
Additional material pricing and availability concerns
The on-going Ukraine crisis has further affected the situation with construction material prices and availability. The renovation market is less dependent on larger quantities of construction materials and for instance the need for steel construction parts, which have seen prices increase above previous year levels, is low compared with new construction. Nonetheless, pricing and availability issues are being seen in areas that also affect the renovation market. For now, we have pre-emptively slightly lowered our Q1 profitability estimates. We see pressure on profitability going forward and seek to gain further clarity on the matter from the Q1 report.
BUY with a target price of EUR 13.0 (14.0)
With the uncertainty relating to material pricing and availability we slightly lower our target price to EUR 13.0 (prev. EUR 14.0). We continue to see that Consti through its renovation focus will be less affected but affected nonetheless. We retain our BUY-rating.
Consti’s Q4 results were on the softer side, with some performance challenges in two regional business units. The guidance implies rather healthy margins in 2022. We retain our BUY-rating with a TP of EUR 14.0 (14.5).
Q4 results on the softer side
Consti reported Q4 results that were on the softer side. Revenue amounted to EUR 82.6m (EUR 86.9m/86.4m Evli/Cons.), with growth of 5.8% y/y. Profitability declined y/y with EBIT amounting to EUR 3.0m (EUR 3.7m/3.4m Evli/cons.). Profitability was impacted by the performance of two regional business units, where corrective actions are ongoing. The order backlog development was on a good track, with new orders of EUR 66.9m and the order backlog up 28.4% y/y to EUR 275.1m. Consti’s BoD proposes a dividend of EUR 0.45 per share (EUR 0.35/0.41 Evli/cons.).
Expect revenue and earnings growth in 2022
Consti’s estimates that its operating result for 2022 will be EUR 9-13m, in line with our and consensus pre-Q4 estimates (EUR 11.0m/11.5m Evli/cons.). No guidance was given on revenue but activity is seen to be higher going into this year compared with the same time in the previous year. The acquisition of RA-Urakointi is also set to boost revenue. We have only made small tweaks to our 2022 estimates, expecting revenue of EUR 309.7m (prev. EUR 314.3m) and EBIT of EUR 10.9m (prev. EUR 11.0m). The situation with construction material prices and availability still pose some margin risks going into 2022, with prices still on elevated levels and material availability uncertainty. The market demand situation appears to be rather adequate, but uncertainties due to the pandemic continue to impact on demand from corporations
BUY with a TP of EUR 14.0 (14.5)
With only small estimate revisions we finetune our TP to EUR 14.0 (prev. 14.5) per share, valuing Consti at approx. 14.0x 2022 P/E, and retain our BUY-rating. Our target price puts valuation quite in line with both the Nordic construction company peer and building installations and services company peers.
Consti's net sales in Q4 amounted to EUR 82.6m, below our and consensus estimates (EUR 86.9m/86.4m Evli/cons.), with growth of 5.8% y/y. EBIT amounted to EUR 3.0m, below our and consensus estimates (EUR 3.7m/3.4m Evli/cons.). The BoD proposes a dividend of EUR 0.45 per share (EUR 0.35/0.41 Evli/cons.). Operating result in 2022 is expected to be EUR 9-13m.
Consti reports its Q4 results on February 4th. We expect double-digit growth, with some margin uncertainty due to the situation with construction materials. Growth is set to continue in 2022 supported by the order backlog and previous acquisition, with some potential for margin improvement depending on the market situation.
Expecting double-digit growth, some margin uncertainty
Consti will report its Q4 results on February 4th. Q3 saw growth accelerate to double-digit figures compared with growth of 1.4% during H1/21. Growth has been supported by the strengthened order backlog, up 15% y/y at the end Q3. The order backlog has received support from the first projects within new construction services, were Consti signed its first projects after the addition to being part of the company’s strategy. Consti also made its first acquisition in a long time, that of RA-Urakointi Oy, a company specializing in the repair of apartments and row houses. We expect growth in Q4 to have remained at a good pace supported by the order backlog and expect a net sales growth of 11.3%. We expect the adjusted operating profit to be slightly below previous year levels due to uncertainties related to construction material prices and availability, at a margin of 4.2%.
Seeing continued good growth in 2022
We expect growth to continue in 2022 supported by the order backlog and acquisition of RA-Urakointi, with our growth estimate at 7.3%. Consti has typically only given a guidance for operating profit, and we expect for Consti to estimate an improvement in operating profit during 2022 compared with 2021. We currently estimate adjusted operating profit margins on par with 2021e, at 3.5%. There is potential for improvement, and we will be keeping an eye on management comments relating to the situation with construction material.
BUY with a target price of EUR 14.5
We have made no changes to our estimates ahead of Q4. On our estimates Consti currently trades at a 2022e P/E of 12.3x, which we do not see as overly challenging. We retain our target price of EUR 14.5 and retain our BUY-rating.
Consti reported good Q3 results, with growth picking up better than anticipated and profitability improving y/y. Construction material costs and availability cause some concern for margins in coming quarters but overall, the outlook still remains favourable. We retain our target price of EUR 14.5 and BUY-rating.
Overall better than expected Q3 results
Consti reported overall good Q3 results and the anticipated pick up in growth was clearly visible. Revenue grew 11.4% to EUR 76.0m (EUR 73.3m/73.0m Evli/cons.), with clear growth in housing companies’ revenue. Profitability also beat our expectations, with EBIT of EUR 3.1m (EUR 2.7m Evli/cons.) and a 0.2pp y/y increase in the EBIT-margin. The order backlog continued to develop favourably, up 15% y/y at EUR 217.9m. Consti reiterated its 2021 EBIT guidance of EUR 4-8m.
Growth picking up, some margin uncertainty
We have slightly raised our estimates in light of the accelerated growth in Q3. We expect an average annual growth of approx. 7% during 2021-2022 (prev. ~3.5%). Growth is driven by the improved order backlog and activity levels and also by the acquisition of RA-Urakointi during the quarter. Demand in the housing market appears to be at healthy levels again, while demand within commercial premises is still seeing recovery. In terms of margins we still remain somewhat on the cautionary side, expecting similar levels during 2021-2022 as seen in 2020 (adj. EBIT-%: 3.4%). The impact of construction material costs and availability did not significantly impact Q3 but will according to the company have a larger impact in Q4. We assume that the impact could also be visible at least during the first quarter of 2022.
BUY with a target price of EUR 14.5
With our estimates revisions ultimately relatively small, we retain our target price of EUR 14.5 and BUY-rating. Our target price values Consti at 14.1x 2022E P/E, roughly on par with the construction peers.
Consti's net sales in Q3 amounted to EUR 76.0m, slightly above our and consensus estimates (EUR 73.3m/73.0m Evli/cons.), with growth picking up clearly to 11.4% y/y. EBIT amounted to EUR 3.1m, above our and consensus estimates (EUR 2.7m Evli/cons.). The order backlog continued to grow well, up 15.0% to EUR 217.9m.
Consti will report its Q3 results on October 27th. We expect to see growth to start picking up supported by the good order intake during H1 and for profitability to remain at healthy levels. We retain our BUY-rating and TP of EUR 14.5.
Slight growth and healthy profitability (excl. NRI’s) in H1…
Consti’s first half of 2021 got off to a decent start. Revenue grew y/y, albeit at a minor pace of 1.4%, with slight pick-up in the second quarter. The order intake improved well, up 30.5% to EUR 168m. As a result, the order backlog was also up y/y by 11.5% at 236.2m. Q2 saw an unfortunate hit to profitability due to the unfavourable outcome of the Hotel St. George arbitration proceedings resulting in a one-off loss of EUR 3.4m. Nonetheless the H1 adj. EBIT-margin remained on par with previous year levels of 2.6% and improved slightly in Q2. Consti lowered its guidance due to the arbitration proceedings ahead of Q2, expecting an EBIT of EUR 4-8m in 2021 (prev. EUR 7-11m).
… with expectations of pick-up in growth during H2
We expect growth to pick up in H2 supported by the good order intake during the first half of the year and a good activity level. Consti’s order intake was aided by its first new construction projects and although demand in certain commercial areas still remain affected by the pandemic, the housing company market has been recovering well and should support demand going forward. We expect growth of 7.5% in Q3 and 4.3% for FY 2021. In regard to profitability Consti achieved rather decent margins already during the previous year and with minor uncertainty due to the recent fluctuations in construction material costs we expect little improvement in margins during H2. We expect Q3 EBIT of EUR 2.7m and FY 2021 EBIT of EUR 5.9m, at the mid-point of Consti’s guidance range.
BUY-rating with a target price of EUR 14.5
We have made no adjustments to our estimates ahead of the Q3 report. We retain our BUY-rating and target price of EUR 14.5 Our target price values Consti at approx. 17x 2021 P/E (excl. arbitration proceedings items).
Consti reported rather good Q2 results on an adj. basis, with both growth and underlying profitability slightly better than expected. The solid order intake also bodes well for continued growth during the latter half of the year. We raise our target price to EUR 14.5 (13.0) and upgrade our rating to BUY (HOLD).
Q2 better than expected on adj. basis
Consti reported overall slightly better than expected Q2 results. Revenue grew 2.3% y/y (5.9% excl. IAC) to EUR 70.9m (EUR 68.5m/69.2m Evli/cons.). The operating profit and adj. operating profit amounted to EUR -0.5m (EUR -0.4m/-0.7m Evli/cons.) and EUR 2.9m (EUR 2.6m Evli) respectively. The operating profit included EUR 3.5m of IAC’s relating to the Hotel St. George project arbitration proceedings, which should no longer materially affect costs during H2. The order backlog was back to growth, up 11.5% y/y to EUR 236.2m, supported by a solid order intake of EUR 98.5m.
Growth picking up
We have made minor upward revisions to our estimates, now expecting 2021 revenue of EUR 286.4m (prev. EUR 278.0m) and operating profit of EUR 5.9m (prev. 5.7m). The growth exceeded our expectations in Q2 and with the solid order intake Consti is poised to continue the growth during the latter half of the year. The increases in building material costs could potentially affect costs during H2 and we for now assume a very minor impact as prices have been going recently. With the new construction venture having gotten off to a good start with the recently signed deals we expect continued growth of some 3% p.a. during 2022-2023 with relatively stable margins on adjusted basis.
BUY (HOLD) with a target price of EUR 14.5 (13.0)
With the signs of pick-up in growth and slightly better than estimated underlying profitability (excl. IAC’s) we raise our target price to EUR 14.5 (13.0) and upgrade our rating to BUY (HOLD). Our TP values Consti at a quite reasonable 14.7x 2022 P/E.
Consti's net sales in Q2 amounted to EUR 70.9m, in line with our and consensus estimates (EUR 68.5m/69.2m Evli/cons.). EBIT amounted to EUR -0.5m, in line with our and consensus estimates (EUR -0.4m/-0.7m Evli/cons.). The order backlog was up 11.5% to EUR 236.5m. Excluding one-offs the report was in our view rather upbeat, in particular on order intake.
Consti reports its Q2 results on July 23rd. The Q2 figures will be burdened by the outcome of the Hotel St. George renovation project arbitration proceedings but operational performance should remain steady. The venture into new building construction has gotten off to a good start with the signing of a larger office construction project.
Arbitration proceedings outcome to burden Q2 results
Consti will report its Q2 results on July 23rd. Profitability figures are expected to be rather grim due to the unfavourable outcome of the arbitration proceedings relating to the Hotel St. George renovation project but apart from that no larger deviations should be expected. The impact of the arbitration proceedings on the operating result should be some EUR 3.0m and we expect an operating result of EUR -0.4m. The impact is partly reflected also in revenue, due to which we expect a slight decline in revenue y/y to EUR 68.5m (Q2/20: EUR 69.3m). Excluding the impact our estimates reflect slight improvement in both revenue and operating result.
Promising start to new construction venture
Apart from the news regarding the arbitration proceedings, the other notable news during the quarter was the announcement of Consti’s first significant new building construction project. The project, consisting of two new office buildings, is valued at approx. EUR 30m. New building construction was implemented as part of Consti’s revised strategy, with the aim for 10-15% of revenue to come from such projects in 2023, and the signing of a deal of such size provides a solid foundation for achieving the target. With Consti having implemented steps to improve profitability, our sights have been turned toward the unfavourable revenue development, and revenue from new construction could well be a driver in Consti’s investment case.
HOLD-rating with a target price of EUR 13.0
We have made no adjustments to our estimates ahead of the Q2 report. We retain our HOLD-rating and target price of EUR 13.0. Our target price values Consti at approx. 16.6x 2021 P/E (excl. arbitration proceedings items).
The arbitration proceedings relating to the Hotel St. George project unfortunately came to a for Consti unfavourable conclusion. As a result, Consti lowered its 2021 operating result estimate to EUR 4-8m (EUR 7-11m). Our 2021 estimate is now EUR 5.7m (EUR 8.7m), TP of EUR 13.0 and HOLD-rating intact.
Arbitration proceedings to an end
The arbitration proceedings between Consti’s subsidiary Consti Korjausrakentaminen Oy and Kiinteistö Oy Yrjönkatu 13 relating to the Hotel St. George construction project came to a conclusion. Compensations amounted to EUR 0.7m for the former and EUR 0.9m for the latter, along with penalty interest. The net receivable related to the project in Consti’s balance sheet was approximately EUR 3m at the end of Q1/2021. Costs relating to the arbitral award will be recorded in Consti’s Q2/2021 results. The positive impact on cash flow is approximately EUR 2m. As a result of the arbitral award Consti lowered its operating result estimate range for 2021 to EUR 4-8m from the previous 7-11m.
Operating result estimate for 2021 down by EUR 3m
With the net compensation close to even the impact on the operating result will be around EUR 3m due to the cancellation of receivables in Consti’s balance sheet. The income statement will be partly effected through revenue and partly costs and we have revised our Q2/2021 estimate for revenue and operating result to EUR 68.5m (EUR 70.5m) and EUR -0.4m (EUR 2.6m). Our revisions solely reflect the outcome of the arbitration proceedings, as operational performance appears to have remained in line with expectations. The outcome, although unfortunate, is essentially a one-off item and ultimately did have a positive cash flow impact.
HOLD with a target price of EUR 13.0
We make no adjustments to our target price or rating based on the outcome of the arbitration proceedings due to the one-off nature. Our target price of EUR 13.0 values Consti at 16.6x 2021 P/E (excl. arbitration proceedings items).
Consti reported Q1 results slightly below our estimates, with EBIT below our estimates driven by legal costs relating to the St. George arbitration proceedings. We continue to expect minor growth and margin improvement in 2021. We retain our HOLD-rating and target price of EUR 13.0.
Legal costs clearly affected profitability
Consti reported Q1 results that were slightly below our estimates. Revenue grew slightly to EUR 59.3m (EUR 60.2m/60.2m Evli/cons.) while EBIT fell y/y to EUR 0.1m (EUR 0.5m/0.6m Evli/cons.). EBIT was affected by legal costs relating to the St. George arbitration proceedings of EUR 0.4m (0.1m), without which relative profitability would have been close to previous year levels. The coronavirus pandemic also had an impact, with more worksite interruptions despite a lower number of cases. Consti had a positive start to the year in terms of order intake, with new orders of EUR 69.8m in the quarter, although the order backlog was still down slightly y/y.
Expect minor growth and margin improvement
Apart from adjustments due to the lower than expected Q1 figures, we make no changes to our estimates. The demand situation in general does not appear to have shown clear improvements yet and was at a reasonable level in Q1. Consti still sees that a higher share of the order backlog will be recognized during the on-going financial year compared to the same time last year and as such we continue to expect minor growth of 1.9%. We expect slight improvement in relative profitability and a 2021 EBIT of EUR 8.7m.
HOLD with a target price of EUR 13.0
The Q1 report did not in any material way affect our view of Consti in the near-term. Valuation in our view continues to appear fair given current limited growth prospects and valuation upside drivers. With our estimates largely intact we retain our HOLD-rating and target price of EUR 13.0.
Consti's net sales in Q1 amounted to EUR 59.3m, in line with our and consensus estimates (EUR 60.2m/60.2m Evli/cons.). EBIT amounted to EUR 0.1m, below our and consensus estimates (EUR 0.5m/0.6m Evli/cons.). 2021 operating profit guidance of EUR 7-11m intact.
Consti will report Q1 results on April 30th. Our attention is drawn towards any comments on demand development. Following share price increase we downgrade to HOLD (BUY), target price of EUR 13.0 intact.
Looking for signs of growth
Consti will report Q1 results on April 30th. Consti posted stable profitability figures throughout 2020 after challenges in previous years and with the pandemic focus has shifted towards order intake and growth. The order backlog development has been on a slightly declining throughout 2020, while order intake development was essentially flat. With the housing company General Meeting season kicking off any comments thereto could give some indication of demand development within housing companies. In terms of top and bottom line figures Q1 is typically the seasonally slowest quarter and we expect sales of EUR 60.2m and EBIT of EUR 0.5m.
Expect slight growth and profitability improvement in 2021
Consti has not given a sales guidance for 2021 while the guidance for EBIT is at EUR 7-11, a wider range due to still present COVID-19 uncertainties. Consti indicated in conjunction with Q4 that the activity level going forward is expected to be higher compared with the same period a year ago despite no clear growth in the order backlog. Our estimates assume only a rather minor growth of 2.3%, quite in line with historic pre-COVID market growth. Focus has in the past been on organizational improvements and profitability, but we expect Consti to increasingly adding attention towards sales growth. In terms of profitability we expect a slight improvement in EBIT-margins, 20bps y/y, to 3.2%.
HOLD (BUY) with a target price of EUR 13.0
Consti’s valuation is currently rather in line with peers although still lower compared to building installations and services peers. Consti is a solid case in terms of cash conversion but on current growth outlook valuation appears quite fair. We have not made changes to our estimates and retain our target price of EUR 13.0. With Consti’s share price up slightly over 10% since our previous update we downgrade to HOLD (BUY).
Consti reported slightly better than expected Q4 results. We continue to expect minor sales growth in 2021 and improvement in operating margins. We adjust our target price to EUR 13.0 (12.0), BUY-rating intact.
Q4 slightly above expectations
Consti reported slightly better than expected Q4 results. Net sales amounted to EUR 78.1m (EUR 71.6m/71.1m Evli/cons.), with sales decline slowing down clearly compared to previous quarters and Q4 net sales down only 0.2% y/y. EBIT amounted to EUR 3.0m (EUR 2.7m Evli/cons.). A dividend distribution of EUR 0.40 per share is proposed (EUR 0.35 Evli/cons.). The order backlog was now down only 4.3% y/y, at EUR 177.9m, after a relatively decent Q4 order intake of EUR 54.3m.
Expecting margin improvement and minor growth
Consti expects an operating profit of EUR 7-11m in 2021, with our estimate unchanged at EUR 9.1m. Activity is seen to increase slightly y/y in 2021 and our net sales estimate is up some 3% to 281m, expecting minor growth of 2.3%. COVID-19 induced uncertainty is still at elevated levels, thus also the wider guidance range. Consti updated its strategy for 2021-2023, with clear focus on the customer focused organization. Perhaps most unexpected was the ambition to expand operations to new construction projects. This approach however appears to be more of a complementary offering to serve existing customers and the share of new construction projects could be seen to be some 10-15% of net sales at the end of the strategy period. In our view Consti now appears to be seeking to take more initiative after having focused on organizational changes and profitability improvement.
BUY with a target price of EUR 13.0 (12.0)
Consti’s valuation has continued to approach that of peers but is still not too stretched and with the good development and solid cash generation we see continued upside potential. We adjust our target price to EUR 13.0 (12.0), valuing Consti at 8.8x 2021 EV/EBITDA, our BUY-rating remains intact.
Consti's net sales in Q4 amounted to EUR 78.1m, above our estimates and consensus estimates (EUR 71.6m/71.1m Evli/cons.). EBIT amounted to EUR 3.0m, slightly above our and consensus estimates (EUR 2.7m/2.7m Evli/cons.). Dividend proposal EUR 0.40 per share (0.35 Evli/cons.). 2021 EBIT guidance EUR 7-11m.
Consti will report Q4 results on February 5th. We expect the steady development seen during earlier quarters to continue and a first good year in a while after previous year challenges. On our estimates Consti is set to double its EBIT-margin in 2020 compared to 2019. We also expect dividend distribution to pick up to EUR 0.35 per share (2019: EUR 0.16).
Expect a good finish to a year of improvement
Consti will report Q4 results on February 5th. We do not expect any major deviations from the steady progress during earlier quarters in 2020 and expect Q4 EBIT of EUR 2.7m. Consti has for FY2020 estimated that its operating result will improve compared to 2019, which was achieved already by Q3. The second wave of the coronavirus pandemic has had an impact on the construction industry during Q4, with reports of temporary worksite shutdowns due to virus exposures. To our understanding Consti has not been significantly affected, with some very minor additional costs having been incurred already from earlier on in the year.
Cash generation supporting increased dividend distribution
We expect that Consti will propose a dividend of EUR 0.35 per share (2019: EUR 0.16), now being well back on track on profitability and cash generation after challenges faced in previous years. The cash flow during 1-9/2020 was an exceptionally solid EUR 14.7m (1-9/2019: EUR -1.1m). The outlook for 2021 remains somewhat weakened by demand uncertainty in particular among corporate customers and we expect only limited growth. Room for some margin improvement still exists, with supplier pricing power having impacted on the construction industry during recent boom years.
BUY with a target price of EUR 12.0 (10.0)
We have not made any revisions to our estimates ahead of Q4. Valuation compared to construction and building installations and services company peers is still not challenging. With peer multiples also up since our previous update we adjust our target price to EUR 12.0 (EUR 10.0) with our BUY-rating intact.
Consti reported Q3 results well in line with our estimates, with highlights being the continued good profitability and free cash flow. Despite a slightly weaker sentiment the outlook in our view still looks favourable but healthy near-term order intake will be of essence for the next year.
Reported rather good figures, in line with our estimates
Consti reported Q3 results well in line with our estimates. Revenue amounted to EUR 68.2m (Evli EUR 69.6m) and EBIT to EUR 2.5m (Evli 2.5m), at a pretty healthy margin of 3.6%. Order intake amounted to EUR 31.0m and the order backlog as such declined y/y and q/q to EUR 189.4m but still slightly above 2019 year-end levels. The highlight of the report along with the good profitability was the free cash flow, which amounted to EUR 4.6m (Q3/19: EUR -0.4m). With a rolling 12m cash conversion of 174% the net debt (excl. IFRS 16) continued to decline, now at EUR 4.8m (Q3/19: EUR 19.6m).
Coming quarters order intake will steer next year
Management comments for Q4/20 were of a more careful tone given the escalated Coronavirus situation post Q3 but solid performance is nonetheless still expected. The near-term development really depends on demand recovery and order intake development during the coming quarters. Based on the current order backlog activity is seen to be higher next year compared to the same situation in 2019. We have slightly lowered our Q4 estimates for a more conservative approach given order intake uncertainty, now expecting 2020 revenue and EBIT of EUR 268.1m and 8.0m respectively. In 2021 we for now expect only a meager growth of 1.4% and EBIT of EUR 9.1m, with housing company demand recovery a potential key near-term uncertainty up until the housing company General Meeting season next spring.
BUY with a target price of EUR 10.0
Although sentiment appears slightly less positive the order backlog, Consti’s ability to adapt to lower volumes, and the long-term sector outlook along with an attractive valuation remain as beneficial factors. We retain our BUY-rating and TP of EUR 10.0.
Consti's net sales in Q3 declined 16.7% to EUR 68.2m, in line with our estimates and slightly below consensus (EUR 69.6m/72.1m Evli/cons.). EBIT amounted to EUR 2.5m, in line with our estimates and slightly below consensus (EUR 2.5m/2.7m Evli/cons.). Free cash flow at EUR 4.6m (Q3/19: EUR -0.4m).
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'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).
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’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'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.
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’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'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.
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 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'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.
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’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'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.
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’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’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.
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’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’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.
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).
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’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 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.
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The operating result for 2022 is estimated to be between EUR 9-13m
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
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