STRABAG confirmed at BUY, TP EUR 38 - Well equipped to navigate rougher waters

In the aftermath of strong FY 19 results we confirm STRABAG at BUY but due to trimmed forecasts reduce the target price to EUR 38 from EUR 40.5. Record earnings were masked by the allocation of provisions (unquantified, but our assumption that this includes the cartel case in Austria was confirmed by the company) and our analysis suggests that on an underlying basis the 4% margin threshold (the target level for FY 22e) would have been already reached. We think this is an encouraging take-away. Moreover, we point out that in Austria construction activity has normalised (output equivalent to about one month was lost) and that stricter hygienic/safety standards are not materially hindering the work progress. Despite travel restrictions, also the availability of staff remains intact. As lockdown and containment measures in the most relevant markets did not comprise construction bans, the groups revised output guidance of approx. EUR14.4 bn appears rather conservative to us. However, with uncertainty at unprecedented levels a safety buffer is prudent. It goes without saying that bearing in mind a projected recession in Europe, prospects have deteriorated. Accordingly, we have lowered our forecasts. However, we stress that STRABAGs balance sheet, determined by a net cash position and an equity ratio of 31.5% at YE 19, is robust enough to weather a more challenging economic framework well.