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.

Peab (Hold, TP: SEK47.00) - Cautious outlook, fair valuation

We are in line with consensus on Q3e revenue, 3% above on EBIT, and 4% above on EPS. We are cautious on the outlook for segments relating to commercial and residential building markets, but still above consensus on Q3e EBIT for Construction (5%) and Property Development (29%), although we expect a low nominal profit for the latter. With key segments facing macroeconomic headwinds and high financial leverage, we reiterate our HOLD and SEK47 target price.

Bright spots few and far between

With only three BUYs, we consider bright spots in the sector – just as residential newbuild and commercial development sales in today’s market – few and far between. New housing sales and commercial property markets have been hit by rising interest rates, and the EU’s Energy Performance of Buildings Directive (EPBD) – which holds potential upside – has been delayed. We still prefer stocks with no (or limited) pure residential exposure; our top picks in construction are Skanska and NCC, but, desp...

Peab (Hold, TP: SEK47.00) - Fair Q2, but weaker on KPIs

Peab reported EBIT and EBIT adj. (excluding a legal settlement) broadly in line with our forecasts. However, order intake (-10%) and backlog (-5%) were weaker than we expected, as were the sales and starts in Property development. With weaker than expected KPIs (orders and housing unit sales), we have reduced our EPS by c6–7% and have cut our target price to SEK47 (50). We reiterate our HOLD.

Peab (Hold, TP: SEK50.00) - Legal settlement boost for Q2e

We have updated our estimates following the ruling in the case between Peab and Unibail Rodamco Westfield regarding the contract for Mall of Scandinavia in Solna, and a Q2 pre-tax non-cash flow gain of SEK790m guided by Peab. In turn, we have raised our target price to SEK50 (45); however, given the limited potential upside, we reiterate our HOLD.

Northern Lights

Building trouble in the private sector

The building outlook remains grim, with very weak new private housing sales and a tough commercial property market. However, the overall picture is eased slightly by support from the public sector and civil engineering, and a likely renovation wave from the Energy Performance of Buildings Directive (EPBD). However, we still prefer stocks with no (or limited) pure residential exposure, and retain our neutral sector stance. Veidekke and Skanska are our preferred picks in construction, but we expec...

Peab (Hold, TP: SEK45.00) - Leverage likely the main risk

We are 2% above consensus on Q2e EBIT (results due at c07:00 CET on 14 July), and also see upside potential (+7%) to consensus order intake. However, due to challenging residential markets, and Peab’s debt levels, we remain concerned dividends could be cut to zero (with the Q4 results). We forecast lower Property Development profits than consensus long-term, and also see EPS and DPS consensus risk. We reiterate our HOLD, but have lowered our target price to SEK45 (55) on updated peer valuations.

Northern Lights

Peab (Hold, TP: SEK55.00) - Low-season and weak KPIs

Due to winter effects, Q1 was as expected low season for Peab. However, the seasonal losses in Industry were marginally lower than we expected, and volumes in Construction slightly higher. This helped to offset a weak quarter for Property Development (PD), with units sold down 69% YOY and order bookings below our estimate and Infront consensus. We continue to see consensus downside risk in PD, and given Peab’s financial leverage, we find peers offer better risk/reward. We reiterate our HOLD and ...

Northern Lights

Peab (Hold, TP: SEK55.00) - Near-term and long-term consensus downside...

We see downside risk to consensus for the Q1 results, due at c13:00 CET on 4 May, but also for 2023–2025 on weaker housing markets. Given a rising NIBD/EBIT and an increasing need to deleverage, we also believe dividends might be cut to zero. As we have lowered our 2023–2025 EPS and DPS forecasts and see consensus downside risk and higher leverage than peers, we have downgraded Peab to HOLD (BUY) and cut our target price to SEK55 (70).

Residential markets still weak, but renovation wave approaching

With still extremely weak new housing sales, we prefer stocks with no (or limited) residential exposure. We fear residential developers might have to downsize if markets do not recover quickly. The EU parliament has passed the EPBD revisions and the bill is now in a trialogue process – in our view this is a major potential catalyst for a wave of renovation. We retain our neutral sector stance, seeing upside potential in construction and downside potential in residential development. Our top sect...

EU say it is time to renovate

The EU Parliament’s position on the Energy Performance of Buildings Directive (EPBD) — which aims to decarbonise the EU’s building stock by 2050 — passed with 343 votes in favour, 216 in opposition and 78 abstentions. The EU aims to standardise (for the first time) energy classifications in Europe and also to introduce modernisation requirements for existing buildings. The aim is to double renovation rates of existing residential and non-residential buildings, starting with the 15% with the lowe...