Sharper quarter than anticipated

Solid value-creation from Peab

Peab (Hold, TP: SEK76.00) - Industry beat

Driven by a higher Industry EBIT margin, the Q3 results were above our estimates and consensus. We have raised our 2024e EPS by c17%, 2025e by c6% and 2026e by c8%. However, we continue to see downside risk to consensus, as we expect it to take longer before Property Development (PD) EBIT recovers. We now include our 2027e, have raised our target price to SEK76 (74), and upgraded to HOLD (SELL).

Solid from Industry, est. up

Case has played out

KPIs and profits reflect cycle-lows

While the sector has rallied on expectations of a recovery in Nordic CRE and residential starts, there are no signs of an actual recovery yet. With our base case still for a gradual sales recovery in 2026, our longer-term estimates remain below consensus, reflecting slow profit-recognition under IFRS – the latter also underlies our expectation of declining revenues and EBIT YOY in Q3 for several names we cover. Our sector top picks are still Skanska, NCC and Veidekke, while we see downside risk ...

Peab (Sell, TP: SEK74.00) - Still well below consensus

We remain well below consensus short- and long-term (-3% on Q3e EPS, but -20% on 2026e EPS, the latter explained by our view of the recovery in Property Development profits taking much longer than the market expects and is being priced in). While we have raised our 2024–2026e EPS by 1–4% after increasing our Civil Engineering margin assumptions, and our target price to SEK74 (67), given our view of the downside risk to consensus, we reiterate our SELL. The Q3 results are due at 08:00 CET on 25 ...

Peab (Sell, TP: SEK67.00) - Hot and cold

Despite weaker-than-expected EBIT from Property Development (PD) and fewer sales and no starts, Peab beat our overall adj. EBIT forecast and Infront as the Industry segment achieved EBIT above estimates. While we have raised our 2024–2026e EPS by 8.5–2% on the strong EBIT margins in Industry, we remain concerned about the high consensus for PD gains. We reiterate our SELL on the consensus downside risk, but have raised our target price to SEK67 (60) on updated estimates.

Fine Industry results

Peab (Sell, TP: SEK60.00) - High debt, high valuation

Peab announced a solid SE7.2bn in orders in Q2, with several large Civil Engineering jobs. However, we believe the weak housing market remains the main obstacle for normalised ROCE. We are below Infront consensus on 2024–2026e EPS, as we forecast lower Property Development gains. For Q2e, we are 5% below Infront consensus on EBIT, but 11% below on EPS. We believe the housing market recovery will take longer than the market expects, and continue to see a better risk/reward elsewhere in the sector...

Expectations running ahead

We continue to see upside potential for diversified construction (Skanska, NCC and Veidekke), but downside risk for residential developers (YIT, JM, Peab and Selvaag Bolig) that have rallied on improving market expectations while new housing sales remains lacklustre. We await the adaptation of the recently EU-approved Energy Performance of Buildings Directive (EPBD). We see a mixed picture for EPS ahead of the Q2 reporting season. We keep a neutral sector view, and still recommend a stock-pickin...

Peab (Sell, TP: SEK60.00) - Q1 beat, but still needs to divest

Despite the low season, Q1 beat our estimates, driven by a commercial asset sale in Property Development (PD), while the deviations to our forecasts were less for the other segments. However, with a high level of capital employed in PD and an IFRS net debt/EBIT of c8x, we believe more focus is needed on capital releases and deleveraging. We have raised our 2024e EPS by c16% (transaction-driven) on the strong Q1, but marginally revised 2025–2026e. We reiterate our SELL on the still-high leverage ...

Record-high order intake

Renovation rules now a reality

The Energy Performance of Buildings Directive (EPBD) was approved on 12 April, requiring the modernisation of existing real estate in the EU, and will soon enter the Official Journal of the EU. Member states will have two years to incorporate the provisions into their national legislation. While Q1 is Nordic construction’s low season due to winter effects, we see some downside risk to Q1e consensus and longer-term to 2024–2026e EBIT on lower development gains. We recommend a stock-picking approa...

Peab (Sell, TP: SEK58.00) - Consensus too bullish, too soon

With solid announced orders in Q1, we expect order intake above consensus, but EBIT below due to the cold Nordic winter and early Easter (results due 6 May (time TBA)). We also believe consensus is too bullish on the speed of Property Development’s recovery. We find the recent share price rally an overreaction and have downgraded to SELL (HOLD), with a raised target price of SEK58 (52), reflecting our updated estimates and peer valuation.

Peab (Hold, TP: SEK52.00) - Q4 as warned

The results were in line with the profit warning on 18 January, and with updated residential volume profits, we have increased our 2024e EPS by 1.4%, 2025e by 3.7% and 2026e by 6.6%. There are still no reported datapoints on an improving market for new housing sales, but we continue to expect an improvement with lower mortgage rates later in 2024e and 2025e. However, after Q4 writedowns, EBIT margins in contracting divisions may remain below historical levels in 2024–2025. We find the valuation ...

Renovation regulation approaching

The ‘trilogue’ process regarding the Energy Performance of Buildings Directive (EPBD) that aims to double renovation rates of commercial and residential properties has been concluded, and the new legislative text is due to be published in spring 2024. Also, the recent pivot in market interest rates has improved the sector outlook, but with long profit lead times. Names with high short interest (JM and SBO) have rallied the recently, but we believe the current valuation underestimates the profit ...

Peab (Hold, TP: SEK48.00) - Profit warning for Q4 and 2023

On Thursday evening, Peab issued a profit warning for Q4 and 2023, booking SEK525m in costs for provisions, writedowns and restructuring as it adjusts operations for the steep decline in the Scandinavian housing market. We have cut our estimates for Q4, but also for 2024–2026e, and lowered our target price to SEK48 (55), but we reiterate our HOLD.

Peab (Hold, TP: SEK55.00) - Above on Q4e, but below longer-term

While our forecasts for the Project division are above consensus for Q4 due to announced development sales, our 2024–2025 forecasts are below. With SEK17.7bn of debt from the 2022–2023 residential market slowdown, we expect ROCE to be hit for the entire forecast period, and DPS to be cut to zero by end-Q3 in order to improve the balance sheet. We reiterate our HOLD, but on rolling forward our estimates and adjusting for peer valuation, we have raised our target price to SEK55 (42).

Political agreement for EPBD

Yesterday evening saw a political agreement and the conclusion of the final trilogue meeting on EPBD revisions. There are some revisions to earlier drafts, but EU member states will now prepare requirements for lower energy building stocks. We believe that once in place this regulation should be a positive for construction companies, but CAPEX for real estate companies.