SRV |

Project management contractor and real estate developer

| Finland

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Financial overview

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SRV - Upgrade to BUY

22.07.2020 | Company update

SRV’s Q2 profitability fell short of our estimates due to one-offs, with revenue and construction profitability slightly better than expected. We have raised our 20-22E EBIT estimates by some 5-10% on a fairly good H1 order intake and higher construction margin expectations. We upgrade our rating to BUY (HOLD) with a target price of EUR 0.66 (0.64).

One-offs affected profitability, good construction margins
SRV’s revenue in Q2 grew 28% y/y to EUR 265.0m for a slight expectations beat (EUR 243.4m/243.0m Evli/cons.). The operative operating profit was at EUR 0.5m (Evli 3.8m), affected by an EUR 3.1m provision for expenses recognized due to a ruling by a Russian court as well as recovery programme costs and costs stemming from impacts of the coronavirus. Construction profitability was good and slightly better than expected, with an operative operating profit margin of 2.8% (Evli 2.6%). The effects of the coronavirus were limited, although some additional costs were incurred, and housing sales were slower during April-May. Shopping centres were also affected and in Russia a large share of stores were and remain closed due to restrictions.

20-22E EBIT estimates raised by some 5-10%
We have post-Q2 raised our 20-22E EBIT estimates by some 5-10%, prompted by a fairly good H1/20 order intake and slightly raised construction margin expectations. The coronavirus pandemic continues to pose a risk, but current recovery prospects in Finland and a higher share of housing units sold to investors in the construction portfolio remain supportive factors.

BUY (HOLD) with a target price of EUR 0.66 (0.64)
Uncertainty of shopping centre exits has increased due to the pandemic and will most likely be delayed, with Pearl Plaza discussions already having been in late stages. On our 21-22E estimates and peer multiples, current valuation levels in our view essentially appear to only assign a value to SRV’s construction operations. We upgrade our rating to BUY (HOLD) with a target price of EUR 0.66 (0.64).

SRV - Fared rather well

21.07.2020 | Earnings Flash

SRV's net sales in Q2 amounted to EUR 265.0m, above our and consensus estimates (EUR 243.4m/243.0m Evli/cons.). EBIT amounted to EUR 3.3m, below our estimates and above consensus estimates (EUR 3.8m/2.4m Evli/cons.).

  • Revenue in Q2 was EUR 265.0m (EUR 207.4m in Q2/19), above our estimates and consensus estimates (EUR 243.4m/243.0m Evli/Cons.). Growth in Q2 amounted to 27.8 % y/y.
  • Operating profit in Q2 amounted to EUR 3.3m (EUR -3.1m in Q2/19), below our estimates and above consensus estimates (EUR 3.8m/2.4m Evli/cons.), at a margin of 1.2 %. The operative operating profit amounted to EUR 0.5m (Evli EUR 3.8m). The operating profit was affected by an EUR 3.1m provision for expenses that were recognized due to a ruling by a Russian court, as well as costs relating to the recovery programme among other things.
  • EPS in Q2 amounted to EUR 0.02, above our estimates and consensus estimates (EUR -0.02/-0.01 Evli/cons.).
  • Construction: Revenue in Q2 was EUR 264.1m vs. EUR 242.7m Evli. Operating profit in Q2 amounted to EUR 7.4m vs. EUR 6.3m Evli.
  • Investments: Revenue in Q2 was EUR 1.2m vs. EUR 1.2m Evli. Operating profit in Q2 amounted to EUR -1.7m vs. EUR -1.5m Evli.
  • Other operations and elim.: Revenue in Q2 was EUR -0.2m vs. EUR -0.5m Evli. Operating profit in Q2 amounted to EUR -2.4m vs. EUR -1.0m Evli.

SRV - Next step of recovery measures

03.06.2020 | Company update

SRV is approaching the final leg of its recovery programme and initiated a rights issue, seeking to raise EUR 50m gross proceeds. The good progress so far remains somewhat overshadowed by the development of the Russian economy. We adjust our TP to EUR 0.64 (1.10), HOLD-rating intact.

Seeking to raise EUR 50m gross proceeds
SRV initiated a rights issue with the aim of raising gross proceeds of EUR 50m and resolved upon offering up to ~131m new shares, corresponding to 49.8% of all shares if fully completed, with existing shareholders receiving one subscription right for each owned share and the subscription price for new shares set at EUR 0.38. The share issue proceeds are primarily intended for strengthening of the company’s balance sheet. SRV also completed a directed share issue in May, resulting in gross proceeds of approx. EUR 75m but no cash proceeds, as outstanding hybrid bonds were converted into equity. The company expects that the issues along with measures taken as part of the company’s recovery programme will improve the company’s equity ratio excl. lease liabilities from 26.4% (31.12.2019) to 30-33% by the end of Q2.

Profitability improving, financial expenses hamper earnings
We assume full completion of the rights issue in our estimates given the EUR 40m commitments made and the discount of the subscription price. Apart from adjustments due to the expected expenses related to the share issues our estimates remain intact. We expect the operative operating profit to improve to EUR 15.3m following improved construction profitability, while expecting net earnings to remain negative due to the high financial expenses.

HOLD with a target price of EUR 0.64 (1.10)
Our SOTP implies an equity value of EUR 0.69 per share while peer multiples remain challenging. The ruble has seen recovery from its Q1 dip but together with the state of the Russian economy pose a risk to easing balance sheet strains through exits. We adjust our target price to EUR 0.64 (1.10) with our HOLD-rating intact.

SRV - Good start to the year

30.04.2020 | Company update

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

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

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

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

SRV - Q1 figures beat expectations

29.04.2020 | Earnings Flash

SRV's net sales in Q1 amounted to EUR 208.1m, above our and consensus estimates (EUR 187.0m/198.0m Evli/cons.). EBIT amounted to EUR 4.5m, above our and consensus estimates (EUR -5.1m/-0.4m Evli/cons.). SRV estimates that 520 developer-contracted housing units will be completed in 2020 (previously 586).

  • Revenue in Q1 was EUR 208.1m (EUR 222.6m in Q1/19), above our estimates and consensus estimates (EUR 187.0m/198.0m Evli/Cons.). Growth in Q1 amounted to -6.5 % y/y.
  • Operating profit in Q1 amounted to EUR 4.5m (EUR 3.3m in Q1/19), above our estimates and consensus estimates (EUR -5.1m/-0.4m Evli/cons.), at a margin of 2.2 %. Operative operating profit was EUR 5.0m (Evli EUR 0.9m).
  • EPS in Q1 amounted to EUR -0.13 (EUR -0.02 in Q1/19), below our estimates and consensus estimates (EUR 0.07/-0.08 Evli/cons.).
  • The order backlog in Q1 was EUR 1,361.5m (EUR 1,782.5m in Q1/19), down by -23.6 %.
  • Construction: Revenue in Q1 was EUR 204.9m vs. EUR 186.3m Evli. Operating profit in Q1 amounted to EUR 6.2m vs. EUR 3.4m Evli.
  • Investments: Revenue in Q1 was EUR 1.6m vs. EUR 1.2m Evli. Operating profit in Q1 amounted to EUR 1.4m vs. EUR -7.5m Evli.
  • Other operations and elim.: Revenue in Q1 was EUR 1.6m vs. EUR -0.5m Evli. Operating profit in Q1 amounted to EUR -0.2m vs. EUR -1.0m Evli.
  • SRV estimates that 520 developer-contracted housing units will be completed in 2020 (previously 586).
  • The coronavirus pandemic did not substantially affect SRV’s revenue and result for January–March.

SRV - Turning the ship in stormy waters

31.03.2020 | Company report

SRV’s road has been bumpy in the past two years and measures are being taken to turn the tide. The slowing down of the Finnish construction market has created prerequisites for improved profitability by alleviating some supply chain pressure. The unfortunate Coronavirus outbreak casts a shadow over the planned turnaround and the uncertainty is reflected in valuation multiples. We adjust our target price to EUR 1.00 (1.30) and retain our HOLD-rating.

Seeking turnaround from recent weak profitability years
SRV’s profitability has been in the red the past two years and the company is under new management seeking to turn the tide. Measures are being taken to enhance operational profitability and improve the financial situation. Market development has shown beneficial signs, as a slowing down of new construction volumes should ease supply chain pricing pressure. The Coronavirus outbreak, however, creates significant near-term uncertainty and any possible impact is yet hard to quantify.

Volumes expected to decline, profitability improve
We expect sales to settle at a level of around 10% below the solid 2019 levels (EUR 1,060.9m) following an expected overall decline in construction volumes. 2020 remains supported by the lengthy order backlog while the completion of fewer developer-contracted housing units will lower sales. We expect profitability to improve in 2020 from the recent weak comparison years due to a diminishing burden of non-recurring items but margins to still remain relatively low. We estimate a 2020 operative operating profit margin of 1.1%.

HOLD with a target price of EUR 1.00 (1.30)
Our DCF and SOTP implied equity fair values are EUR 1.10 and 0.64 respectively. We derive a target price or EUR 1.00 (1.30) per share, assigning more weight to our DCF fair value due to an unjust near-term weight on profitability of our SOTP-model and retain our HOLD-rating.

SRV - Short-term losses for long-term gains

07.02.2020 | Company update

SRV’s Q4 results were on paper rather catastrophic due to significant impairment charges relating mainly to the REDI shopping centre, with the Q4 operative operating profit at EUR -87.2m (Evli EUR 2.3m). SRV announced a series of measures to strengthen its financial position, that on a short-term perspective appear unfavourable, but will benefit SRV in the coming years. We retain our HOLD-rating with a target price of EUR 1.30.

Earnings clearly in the red due to impairment charges

SRV’s Q4 revenue amounted to EUR 403.8m (Evli 370.2m) and operative operating profit to EUR -87.2m (Evli 2.3m). Q4 included impairment charges of EUR 92.9m, relating mainly to the REDI shopping centre, as SRV has agreed to divest its ownership. Although the Q4 results on paper were rather catastrophic, construction margins (excluding one-off charges) were in fact clearly better than we had expected, supported at least partly by the higher than expected revenue.

Taking measures to improve financial situation

SRV announced a series of measures to strengthen its financial position, of which the in our view in the near-term most important include the divestment of the ownership in the REDI shopping centre and a larger part of the Tampere Deck and Arena project, which should have a near-term positive cash flow impact of some EUR 45m. The measures do not appear favourable in the short-term but are in our view a positive sign as SRV is under CEO Saku Sipola clearly looking to create a more sustainable financial situation and improve operational performance.

HOLD with a target price of EUR 1.3

Our SOTP values SRV at EUR 1.9 per share. The valuation is still highly dependent on improvement in the construction business profitability, which we have yet to see significant proof of. The financial situation is still somewhat challenging even with the measures announced and as such the investment risks remain elevated. We retain our HOLD-rating and target price of EUR 1.3

SRV - REDI amortization driven miss

06.02.2020 | Earnings Flash

SRV's net sales in Q4 amounted to EUR 403.8m, above our estimates and above consensus estimates (EUR 370.2m/381.0m Evli/cons.). EBIT amounted to EUR -86.8m, below our and consensus estimates (EUR 2.3m/0.2m Evli/cons.). Q4 was affected by significant amortization charges relating mainly to the REDI shopping centre.

  • Revenue in Q4 was EUR 403.8m (EUR 299.7m in Q4/18), above our estimates and consensus estimates (EUR 370.2m/381.0m Evli/Cons.). Growth in Q4 amounted to 34.7 % y/y.
  • Operating profit in Q4 amounted to EUR -86.8m (EUR 0.1m in Q4/18), below our estimates and consensus estimates (EUR 2.3m/0.2m Evli/cons.). SRV recorded amortization charges totaling EUR 92.9m, relating mainly to the REDI shopping centre sale.
  • Construction: Revenue in Q4 was EUR 403.1m vs. EUR 368.7m Evli. Operating profit in Q4 amounted to EUR 3.6m vs. EUR 8.8m Evli.
  • Investments: Revenue in Q4 was EUR 1.7m vs. EUR 1.5m Evli. Operating profit in Q4 amounted to EUR -87.5m vs. EUR -5.0m Evli.
  • Other operations and elim.: Revenue in Q4 was EUR -0.9m vs. EUR 0.0m Evli. Operating profit in Q4 amounted to EUR -2.9m vs. EUR -1.5m Evli.
  • SRV expects revenue in 2020 to decline compared with 2019 and the operative operating profit to be positive and improve compared with 2019.
  • SRV proposes that no dividend will be paid for 2019 (EUR 0.0 Evli/Cons.).
  • SRV further informed of a sale of its ownership in the REDI shopping centre and is decreasing its ownership in the Tampere Deck and Arena project along with a series of financing decisions.

SRV - Persisting challenges

01.11.2019 | Company update

SRV’s Q3 results were below our expectations, as while revenue beat our estimates slightly (Act./Evli 227.1m/222.1m), EBIT was below our estimates at EUR -6.3m (Evli -2.5m). Profitability was impacted by impairments relating to investments in Russia and weaker margins in the Construction segment, driven by two larger projects. SRV announced the initiation of a recovery programme, with the short-term goal of ensuring positive cash flow and operating profit in 2020.

Results below expectations

SRV’s Q3 results were weaker than expected. Revenue was slightly above our estimates, at EUR 227.1m (Evli EUR 222.1m), while EBIT was below our estimates at EUR -6.3m (Evli -2.5m). EBIT was weaker partly due to impairments relating to investments in Russia, which we had forecast to Q4/19, but the weaker margins also hit EBIT of the Construction segment harder than we had estimated and was EUR -3.4m (Evli -0.5m). Positive operational news in the quarter were quite frankly limited, but the announced recovery programme and comments from recently joined CEO Saku Sipola point towards stronger determination in improving cash flows and the balance sheet.

Initiated a recovery programme

SRV announced the launch of a recovery programme, with the short-term goal of ensuring its operative operating profit and cash flow for 2020 are positive and returning its operative operating profit for 2021 to the level of 2017 (EUR 27.1m). We interpret the information given as a continued subpar performance in 2020 and take a more conservative stance on earnings improvement, lowering our 2020 EBIT estimate to EUR 12.6m (prev. EUR 28.2m). The slowing down of the construction sector and the more non-recurring nature of a larger part of the problems in 2019 in our view, however, still continue to speak for clear profitability improvements.

HOLD with a target price of EUR 1.30

Following revisions to our estimates we lower our target price to EUR 1.3 (1.4), retaining our HOLD-rating.

SRV - Earnings weaker than expected

31.10.2019 | Earnings Flash

SRV's net sales in Q3 amounted to EUR 227.1m, in slightly above our and consensus estimates (EUR 222.1m/222.0m Evli/cons.). EBIT amounted to EUR -6.3m, below our and consensus estimates (EUR -2.5m/-2.9m Evli/cons.). SRV announced the initiation of a recovery programme.

  • Revenue in Q3 was EUR 227.1m (EUR 208.7m in Q3/18), slightly above our estimates and consensus estimates (EUR 222.1m/222.0m Evli/Cons.). Growth in Q3 amounted to 8.8 % y/y.
  • Operating profit in Q3 amounted to EUR -6.3m (EUR -5.7m in Q3/18), below our estimates and consensus estimates (EUR -2.5m/-2.9m Evli/cons.), at a margin of -2.8 %. The operative operating profit amounted to EUR -7.0m, below our estimates (Evli -2.5m).
  • EPS in Q3 amounted to EUR -0.22 (EUR -0.15 in Q3/18), below our estimates and consensus estimates (EUR -0.13/-0.13 Evli/cons.).
  • The order backlog in Q3 was EUR 1,592.6m (EUR 1,661.5m in Q3/18), down by -4.1 %.
  • Construction: Revenue in Q3 was EUR 226.0m vs. EUR 220.9m Evli. Operating profit in Q3 amounted to EUR -3.4m vs. EUR -0.5m Evli.
  • Investments: Revenue in Q3 was EUR 1.4m vs. EUR 1.2m Evli. Operating profit in Q3 amounted to EUR -3.1m vs. EUR -1.5m Evli.
  • SRV further announced the initiation a recovery programme, with the short-term goal of ensuring its operative operating profit and cash flow for 2020 are positive and returning its operative operating profit for 2021 to the level of 2017.

SRV - Lowers profit guidance

11.10.2019 | Company update

SRV issued a profit warning on October 10th, estimating that its operative operating profit will be at a loss due to impairments relating to its investments in Russia and decreasing margins in certain projects. We had expected profitability to improve towards the end of 2019 with the completion of a significant number of developer-contracting housing units and the new guidance puts the operative operating profit well below our estimates (Evli EUR 14.7m).

2019 operative operating profit to be negative

SRV downgraded its operative operating guidance for 2019, estimating that its operative operating profit will be at a loss due to impairments relating to its investments in Russia and decreasing margins in certain projects. Previous guidance put the operative operating profit between EUR 0-27m. SRV’s estimate for completed developer-contracting housing units in 2019 remains unchanged, at 809 units. We had estimated a 2019 operative operating profit of EUR 14.7m, based on the expected large number of completions in Q4/2019.

We expect a 2019 EUR -6.3m operative operating profit

Based on the limited information given we have adjusted our H2/19 operative operating profit estimate for the Construction segment by EUR -11m to account for the weaker margins and costs related to the delay of REDI Majakka. We have further included a EUR -10m impairment charge to Q4/19 relating to the Russian investments, which on a speculative note may relate to the on-going Pearl Plaza negotiations. Our revised operative operating profit for 2019 is at EUR -6.3m. We do not expect a dividend in 2019/2020, with our other estimates unchanged until further clarity from the Q3 results on October 31st.

HOLD with a target price of EUR 1.40 (1.80)

Following the vague guidance revision, uncertainty regarding our end of year estimates is significant, but 2019 will nonetheless be another weak year. We adjust our target price to EUR 1.40 (1.80) following the estimates revisions and retain our HOLD-rating.

SRV - Profitability remains under pressure

18.07.2019 | Company update

SRV’s profitability in Q2 was clearly weaker than we had expected following margin reductions in certain construction projects. We adjust our 2019E operative operating profit estimate downward to EUR 14.7m (prev. 21.1m). We retain our HOLD rating with a TP of EUR 1.8 (1.9)

Weaker margin projects pushed profits back in to the red

SRV’s Q2 earnings were weak, with the operative operating profit at EUR -3.1m compared to our estimate of EUR 2.9m. Q2 saw the completion of a low number of developer-contracted housing units and as such a y/y revenue decline to EUR 207.4m, in line with our estimate of EUR 209.8m, which had an impact on profitability. Earnings were further affected by construction margin reductions in three projects, expected to be completed by the end of this year, totaling EUR 6.8m, along with other minor non-recurring items.

2019 earnings to be dictated by Q4 housing completions

Our estimates remain intact apart from minor H2/19 adjustments and a revision for 2019 profitability due to the weaker than expected Q2. For 2019E we estimate revenue of EUR 1,026m (prev. 1,029m) and an operative operating profit of EUR 14.7m (prev. 21.1m). Earnings in 2019 are heavily skewed towards Q4 due to developer-contracting housing unit completion timing, with REDI Majakka accounting for some half of the expected completions. We continue to expect a divestment of Pearl Plaza in 2019, although not included in our earnings estimates as the possible transaction would according to SRV have no significant impact on group profits.

HOLD with a target price of EUR 1.80 (1.90)

Valuation based on peer multiples appears more than challenging, in particular on EV metrics due to the high leverage, while our SOTP offers some leeway due to the shopping centres not reflected through earnings comparison. Caution due to weak near-term earnings visibility following a sequence of negative surprises is also warranted and we retain our HOLD rating, adjusting our TP to 1.80 (1.90) following our estimates revision.

SRV - Weaker margin projects burden EBIT

17.07.2019 | Earnings Flash

SRV’s Q2 earnings overall were weaker than expected. Revenue was in line with our expectations (Act./Evli EUR 207.4m/209.8m) as Q2 saw the completion of fewer developer-contracted housing units. The operative operating profitability was negative at EUR -3.1m (Evli 2.9m) and clearly weaker than expected, seemingly mainly due to an underestimation of the impact of weaker margin projects.

  • SRV’s revenue in Q2 amounted to EUR 207.4m (Q2/18: EUR 235.8m), in line with our estimates and below consensus estimates (EUR 209.8m/220.0m Evli/cons.). Revenue in Q2 declined some 12% y/y. Revenue was as expected weaker due to the completion of fewer developer-contracted housing units.
  • The operating profit in Q2 amounted to EUR -3.1m (Q2/18: EUR -5.5m), clearly below both our and consensus estimates (EUR 3.6m/2.4m Evli/cons.), at an operating profit margin of -1.5%. The operative operating profit amounted to EUR -3.2m (Evli EUR 2.9m). The deviation seems to arise mainly from an underestimation of the impact on weak margin projects.
  • The order backlog remained largely unchanged at EUR 1,667.2m (Q2/18: EUR 1,716.7m)
  • SRV issued an EUR 58.4m hybrid bond, of which EUR 20.5m was used to repay an existing hybrid bond and EUR 37.9m for early repayment of existing notes.

SRV - Biggest troubles now behind

29.04.2019 | Company update

SRV’s operative operating profit remained barely positive, at EUR 0.5m, despite notable FX impact and one-off items burden. SRV specified its guidance for the operative operating profit, implying a range of EUR 0-27m. Our revised estimate for 2019 stands at EUR 21.1m (prev. 32.7m), attributable to a re-evaluation of the impact of on-going lower margin projects. We retain our HOLD-rating with a target price of EUR 1.9 (2.0)

Earnings impacted by approx. EUR 3m one-offs

SRV’s Q1 revenue amounted to EUR 222.6m, supported by increased housing unit completions. The operative operating profit fell below expectations, at EUR 0.5m, primarily due to approx. EUR 3m expense entries for REDI Majakka’s water damage and the dissolution of the VTBC fund. The operating profit was aided by a stronger ruble and amounted to EUR 3.3m. SRV further specified its operative operating profit guidance for 2019, expecting it to be positive but below the EUR 27m operative operating profit in 2017.

Downwards revisions on our estimates

We have lowered our 2019 revenue estimates by approx. 5% to EUR 1,029m, mainly through lowered business construction estimates. We have also lowered our operative operating profit estimates to EUR 21.1m (prev. 32.7m) in accordance with the specified guidance. We note that in our pre-Q1 estimates we underestimated the impact of on-going lower margin projects, which are expected to continue to have an effect during 2019. With the delay of REDI Majakka we expect a bulk of housing units to be completed in late-2019 and such our estimates, especially for earnings, are heavily skewed towards Q4/19.

HOLD with a target price of EUR 1.9 (2.0)

The introduction of IFRS 16 and the treatment of plot leases, causes severe comparability uncertainty for peer multiples, as for SRV the change increased net interest-bearing debt by more than 50%, and for now we refrain from relying on per multiples. With the downward revisions of our estimates we lower our target price to EUR 1.9 (2.0) and retain our HOLD-rating.

SRV - Results quite in line, guidance specified

26.04.2019 | Earnings Flash

SRV’s Q1 results were in general quite in line with our and consensus estimates. The operating profit was EUR 3.3m (EUR 3.8m/2.8m Evli/cons.) and operative operating profit EUR 0.5m (Evli 4.8m). Revenue was EUR 222.6m (EUR 224.7m/232.7m Evli/cons.). SRV specified its guidance, adding that the operative operating profit is expected to be lower than in 2017 (EUR 27m).

  • SRV’s revenue in Q1 amounted to EUR 222.6m (EUR 215.7m in Q1/18), quite in line with our and consensus estimates (EUR 224.7m/232.7m Evli/cons.). Growth in Q1 amounted to 3.2% y/y.
  • The operating profit in Q1 amounted to EUR 3.3m (EUR -8.7m in Q1/18), slightly below our estimates but above consensus (EUR 3.8m/2.8m Evli/cons.), at an operating profit margin of 1.5 %. The operative operating profit amounted to EUR 0.5m (Evli EUR 4.8m) and includes an expense entry of approx. EUR 3m relating to REDI Majakka’s water damage and the dissolution of the VTBC fund.
  • The order backlog strengthened to EUR 1,782.5m (Q1/18: EUR 1,634.0m)
  • Guidance specified: SRV expects the full-year consolidated revenue for 2019 to grow compared to 2018 (EUR 959.7m). The operative operating profit is expected to improve compared to 2018 (EUR -10.0m) and to be positive, but lower than operative operating profit in 2017 (EUR 27m).
  • SRV is investigating the possibility to strengthen its balance sheet through the issuance of a new hybrid bond with an estimated size of EUR 45-60m.

SRV - Leaving first unprofitable year behind

07.02.2019 | Company update

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

Weak profitability in Q4

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

2019 profitability estimates lowered

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

HOLD with a target price of EUR 2.0 (2.4)

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

SRV - Profitability below expectations

06.02.2019 | Earnings Flash

SRV’s Q4 profitability fell below our expectations, with the operating profit at EUR 0.1m (Evli EUR 7.8m). Revenue was EUR 299.8m (Evli 299.6m). Profitability was burdened by additional costs from the REDI shopping centre and impairment charges in International Operations. SRV expects revenue to grow in 2019 compared to 2018 (EUR 959.7m) and the operative operating profit to improve compared to 2018 (EUR -10.0m) and be positive.

  • Revenue in Q4 was EUR 299.8m (EUR 338.7m in Q4/17), in line with our estimates (Evli EUR 299.6m). Growth in Q4 amounted to -11.5 % y/y.
  • Operating profit in Q4 was EUR 0.1m (EUR 11.2m in Q4/17), below our estimates (Evli EUR 7.8m), at a margin of 0 %. The operative operating profit amounted to EUR 1.5m and was affected by rising costs, additional REDI costs of EUR 11.1m, an impairment of EUR 4m in International Operations, and a EUR 14m capital gain for the sale of SRV Kalusto.
  • The order backlog strengthened to EUR 1,832m (2017: EUR 1,574.9m)
  • Guidance: SRV expects the full-year consolidated revenue for 2019 to grow compared to 2018 (EUR 959.7m). The operative operating profit is expected to improve compared to 2018 (EUR -10.0m) and to be positive. A total of 809 developer-contracted housing are estimated to be completed in 2019 (526 in 2018).
  • Dividend proposal: SRV proposes that no dividend be paid for FY2018.

SRV - Moving towards positive profitability

26.10.2018 | Company update

SRV’s Q3 results were slightly better than we expected. Revenue fell slightly short of our estimates due to lower revenue in business construction. Profitability was better than expected, mainly due to a smaller impact of the REDI project than we had anticipated. Further cost exceeding in the project is still possible but unlikely and with the project having been completed the potential additional costs should be significantly smaller. We retain our HOLD rating with a target price of EUR 2.4 (2.7).

Q3 slightly better than anticipated

SRV’s Q3 revenue came in at EUR 208.4m (Evli 216.8m), while the operative operating profit amounted to EUR -3.1m (Evli EUR -6.9m). The revenue was mainly in line with expectations but fell short of our estimates in business construction in Finland. The profitability beat was mainly due to the negative impact of the REDI project being smaller than we had anticipated. SRV’s order backlog remained solid at EUR 1,678.5m, up 9.3 % y/y. SRV made agreements for releasing capital tied on the balance sheet for approx. EUR 50m, of which around EUR 20m will materialize in Q4 along with an additional goal of EUR 20-30m.

Estimates revisions minor

We have made minor changes to our estimates, with our 2018E revenue and operative operating profit figures at EUR 959.3m (prev. 960.5m) and EUR -2.3m (prev. -5.2m). SRV expects revenue in 2018 to decline compared to 2017 (EUR 1,114.4m) and the operative operating profit to be negative. We have also checked down our 2019E sales growth estimates by approx. 2 percentage points, mainly in business construction in Finland.

HOLD with a target price of EUR 2.4 (2.7)

On our estimates SRV trades at EV/EBIT and P/E 2019E of 10.8x and 7.7x respectively. SRV trades at a discount to peer P/E 2019E multiples, which we currently consider reasonable following the profitability issues. We retain our HOLD-rating at a target price of EUR 2.4 (2.7).

SRV - EBIT above expectations

25.10.2018 | Earnings Flash

SRV’s Q3 results were slightly better than expected. Although revenue fell slightly short of our estimates, EUR 208.4m vs. Evli EUR 216.8m, EBIT came in above our estimates, at EUR -5.7m vs. Evli EUR -8.4m. The earnings impact of REDI was slightly smaller than we had anticipated in Q3. SRV expects a positive operative operating profit and cash flow in Q4/18.

  • SRV’s revenue in Q3 amounted to EUR 208.4m, compared to EUR 216.8m/233.7m Evli/cons. Sales declined 22 % y/y.
  • EBIT in Q3 was EUR -5.7m compared to EUR -8.4m/-7.6m Evli/cons. International Operations stood for EUR -3.7m of EBIT. The EBIT-margin in Q3 was -2.7 %. The operating operative profit amounted to EUR -3.1m vs. EUR -6.9m Evli.
  • Order backlog at EUR 1,678.5m, up 9.3 % y/y.
  • Negative impact of the REDI project on earnings during Jan-Sep 2018 was EUR 29.7m, and EUR 9.4m in Q3.
  • In its preliminary outlook SRV expects the operative operating profit and cash flow to be positive in Q4.
  • Operations Finland: Business construction revenue EUR 159.1m (Evli 167.1m), housing construction revenue EUR 47.4m (Evli 48.2m). Operative operating profit EUR -1.8m (Evli -4.7m)
  • International operations: Revenue EUR 1.8m (Evli EUR 1.5m) and operative operating profit EUR -1.1m (Evli EUR -1.2m)
  • The completion of the REDI Majakka housing project I expected to be delayed from May 2019 to June-July 2019.

SRV - Initiate coverage with BUY

05.09.2018 | Company report

We initiate coverage of SRV with a BUY rating and target price of EUR 3.2. We expect profitability to see recovery during H2/18 with the completion of the REDI project. We expect sales growth of 14.5 % in 2019E, driven by an increase in developer contracting housing unit completions, and an EBIT margin of 3.7 %, supported by improved business construction profitability and a smaller foreign exchange rate impact.

Profitability expected to see recovery in H2/18

SRV’s sales have declined during H1/18 following fewer completed developer contracting units along with a lowered construction activity in international operations. EBIT was negative at EUR -14.3m due to a negative impact of EUR 20.3m from exceeding costs in the REDI project along with exchange rate impacts. Profitability is expected to see recovery during H2/18 with the completion of the REDI project and increased housing completions.

Sales growth and profitability improvement in 2019

We expect sales to see growth in 2019, with our sales growth estimate at 14.5 %. Growth is mainly expected from an increase in developer contracting housing unit completions, supported by a large number of start-ups in 2017. We expect the increased sales, along with the completion of the REDI project in 2018 and reduced exchange rate impact from redenomination of loans to support profitability improvements in 2019 and expect an EBIT of EUR 41.1m, at an EBIT-margin of 3.7 %.

BUY with a target price of EUR 3.2

We initiate coverage of SRV with a BUY-rating and a target price of EUR 3.2. Our sum-of-the-parts and DCF values are at EUR 3.8 per share. On peer 2019E EV/EBIT SRV trades at a slight premium but taking into consideration an estimate range for the earnings impact of a potential Pearl Plaza exit valuation looks more attractive.

SRV Q120 interview with CEO Saku Sipola

SRV - Q1/20 video interview with CEO Saku Sipola

29.04.2020
SRV Q4 interview with CEO Saku Sipola

SRV - Q4/19 video interview with CEO Saku Sipola

06.02.2020
SRV company presentation 15082019

SRV - Company presentation

15.08.2019
ShareholdersDate% of shares% of votes
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SRV company presentation 15082019

Video presentation

Company Facts

Guidance

Full-year consolidated revenue for 2020 is expected to fall in comparison with 2019 (2019: EUR 1,060.9 million). The operative operating profit is expected to improve from 2019 and to be positive (2019: EUR -96.8 million).

Financial targets

2018–2022 strategic financial objectives: Operative operating profit margin of 8 per cent. Return on equity at least 15 per cent and return on investment at least 12 per cent by the end of the strategy period. Equity ratio target above 35 per cent. The longer-term objective is to distribute dividend of 30-50 per cent of the annual result.

Share price (EUR)


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