PORR confirmed at HOLD, TP EUR 14 - Lowering estimates and target price

In the aftermath of the 2Q results release we have lowered our forecasts and in turn reduce the target price to EUR 14 from EUR 17 while maintaining the HOLD recommendation. In our view, 2Q contained no catalyst and we perceive the investment case as largely unchanged. The groups main asset is the comfortable order book which according to management statements carries a better underlying profitability than in the past. Cost savings are primarily centred in the areas of procurement and overheads, aided by streamlined organisational structures and the further roll-out of IT solutions. We acknowledge the drivers for the targeted margin improvement but at the same time think that the trajectory for improvement at the moment lacks tangible evidence of an outperformance compared to current expectations. We acknowledge that Covid-19 represented a caesura in the current year, with associated extra costs impacting profits. However, at this stage we think that bearing in mind the bumpy margin performance of recent years, it is premature to factor in a too pronounced profitability uplift in the coming years. With an estimated equity ratio of just under 21% by year-end (incl. hybrid capital and profit-participation rights totalling EUR 319 mn), we deem the balance sheet quality as unconvincing. The stocks trading multiples look compelling at face value with a ~30% discount to the sector on EV/EBITDA (but an ~40% premium on EV/EBIT) but reflect the muted profitability/return profile and the low share liquidity, in our view. Our target price implies a P/B multiple of 1.0x, which is in line with the sector.