Mixed upside potential, despite market recovery expectations

Pent-up demand and falling interest rates remain the backbone for newbuild recovery expectations. However, as the recovery has not yet started, property developers screen as the most attractive long-term, but visibility remains mixed. Diversified construction companies are more attractive on near-term P/Es, although many seem to be fully valued on solid share-price performance over the past six months. We maintain a neutral sector view; NCC and Skanska are our top picks.

Some early signs of improvement

NRC Group (Hold, TP: NOK4.50) - Results will speak for themselves

With its weaker-than-expected Q4, NRC Group reiterated its 2025 guidance for revenue of NOK7bn and an adj. EBIT margin above 2%. However, as the company has missed its revenue guidance and EBIT margin targets for seven years in a row (2018–2024), we await evidence of an EBIT margin recovery. We remain cautious, and believe NRC is a high-risk/high-reward investment case, with ample upside potential should it reach its EBIT margin targets. We reiterate our HOLD, but have cut our target price to NO...

Another messy report - ETM writedown of NOK 30m

Q4e: Improving market outlook

Keeping it cautious in 2024

Wide peer valuation range on market recovery expectations

Various waves of expectations for a recovery in newbuild markets have led to volatility in the sector, but an upwards share-price trend overall. Although we still await proof the new-volume market (both residential and commercial) is recovering, consensus is fuelled by falling rates. However, trailing profits under IFRS valuations are record-wide. We maintain a neutral sector view and stock-picking approach.

NRC Group (Hold, TP: NOK5.00) - Q4 unlikely to be a turning point

We believe NRC remains an EBIT margin recovery story that has yet to show a consistent improvement. On our low expectations for Q4, we forecast EBIT of NOK42m. Positively, announced orders for the quarter totalled cNOK1.3bn. Given the recovery has yet to materialise and multiple years of EBIT misses, we reiterate our HOLD, but have raised our target price to NOK5 (4).

NRC Group (Hold, TP: NOK4.00) - No signs of margin recovery

As expected, Q3 EPS was close to zero, with still-weak EBIT margins following the ETM project write-downs in Q2. The 2024 guidance was unchanged, for a negative adj. EBIT margin of 0.9–1.5%, but positive in 2025 (at least 2%) and 5%+ longer-term. While we see significant upside potential if NRC reaches the 5% target, its poor track record means we are still cautious about Q4–Q1, for which we expect EPS to again be close to zero. We reiterate our HOLD, but have raised our target price to NOK4 (3....

Significant upside - uncertainty remains

Operations in line, uncertainty persists

Refinanced – time to deliver

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 ...

NRC Group (Hold, TP: NOK3.20) - No EBIT margin catalysts in sight

We believe NRC remains a high-risk EBIT margin recovery case (with potentially high returns). However, based on the 2024 guidance and its Q1s being low season from winter effects, we expect no signs of an EBIT margin recovery until Q2 2025 at the earliest. Also, given NRC’s track record, numerous quarters of profit recovery may be needed for the share to reprice. In an M&A scenario, due to its low EV/sales, we could see upside potential, but this is not our base case. On our updated forecasts (n...

Building a stronger organisation

Potential equity issue as Meråkerbanen hampers liquidity. FY'25e target: Adj. EBIT >NOK 140m. Long-term targets reiterated: NOK 10bn in revenues and 5% margin.

NRC Group (Hold, TP: NOK6.00) - High-risk assessment proved right

After highlighting the high risk in NRC for the past few years, this stance was supported by the Q2 report. The underlying results were broadly in line with July’s profit warning, but the company also made some additional goodwill writedowns and indicated a weaker 2024 outlook. Moreover, it announced an equity issue but not the terms, prompting us to be concerned about the dilution risk. We have thus downgraded to HOLD (BUY) and cut our target price to NOK6 (14) – awaiting more clarity on the te...

Meråkerbanen hampering liquidity

NRC Group (Buy, TP: NOK14.00) - Clean slate

NRC issued a Q2 and 2024 profit warning; about half a year into the new CEO’s tenure, it has decided to write down some old projects, reducing uncertainty, and seeks to ensure a prudent accounting regime. NRC remains a high-risk turnaround case, in our view, but in the event of a successful turnaround, we see ample upside potential. While NRC looks set for more weak results, we reiterate our BUY on the low valuation, but have cut our target price to NOK14 (15) and continue to highlight the high ...

Massive PW for 2024

Awaiting clarification at Meråkerbanen

Q2e: Adj. EBIT NOK 58m vs. consensus at NOK 65m. Financial targets ('28): NOK 10bn revenues and +5% EBIT margin. Reiterate BUY and TP of NOK 16.