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...

NRC Group (Buy, TP: NOK15.00) - New CEO’s plan in focus

NRC’s Q1s tend to be its low season, due to the Nordic winter effects, and we expect a seasonal loss in EBIT (results due at c07:00 CET on 25 May). However, announced order intake has been strong, including the order termination and excluding the EUR344m light rail alliance contract in Finland. In conjunction with the Q1 results, NRC is due to host a CMD, where the new CEO will present the new group strategy. We continue to see strong upside potential on an EBIT margin recovery and reiterate our...

NRC Group ASA: 2 directors

A director at NRC Group ASA maiden bought 9,430 shares at 10.800NOK and the significance rating of the trade was 67/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years c...

NRC Group (Buy, TP: NOK15.00) - Q4 volume but not EBIT beat

Q4 was the first full quarter under new CEO Anders Gustafsson. Revenue, order intake, and order backlog beat our forecasts, but EBIT did not. The company is set to present a strategy update at a CMD in May (date to be announced), where we will look for further comments on how it intends to reach its long-term 5%+ EBIT margin target. We still see a high-risk margin recovery case, with ample upside potential if successful. We have pushed our recovery expectations back by one year and cut our 2024–...

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 ...

NRC Group (Buy, TP: NOK16.00) - No big news expected before CMD

New CEO Anders Gustafsson said NRC would host a CMD in May 2024, so we do not envisage much news with the Q4 results (due at c07:00 CET on 27 February) while he eases into the role. Long-term, we believe Mr Gustafsson will recycle some of his strategies from his time at Svevia, but not comment before the CMD. Having lowered the 2023 guidance in Q3, we do not expect the Q4 results to surprise. NRC remains a high-risk EBIT margin recovery case in our view, but with new bond financing in place, we ...

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.

NRC Group (Buy, TP: NOK16.00) - A reset by the new CEO

The Q3 results were weaker than we expected. Also, the first quarterly report presented by new CEO Anders Gustafsson saw the 2023 guidance and 2024 growth outlook lowered. NRC indicated it would present a new strategy at a CMD in May 2024; we expect NRC could be planning to branch out into more civil projects. Given the more cautious outlook, more prudent profit recognition and weak market in Finland, we have cut our 2023–2025e EPS by c70–c30%. We reiterate our BUY, but have cut our target price...

NRC Group (Buy, TP: NOK20.00) - Focus remains on the EBIT margin

Focus remains on the EBIT margin We are below a two-sample consensus on revenues for Q3, but in line on EBIT. More importantly, we look for signs the EBIT margin recovery seen in Q2 is enduring, and in our view an in-line result would be seen by investors as positive. We reiterate our BUY and NOK20 target price, but do not expect investors to fully commit to the NRC story until new CEO Anders Gustafsson, due to start later in Q4, has shared his thoughts and plans.

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...

Northern Lights

NRC Group (Buy, TP: NOK20.00) - Q2 supportive for recovery case

The Q2 results were broadly in line with our estimates and Bloomberg consensus, while NRC restated its focus on improving the EBIT margin. We find this supportive for the recovery case and reiterate our BUY and NOK20 target price. Given the new CEO is set to start on 1 October, a near-term relief rally seems premature, despite the positive Q2 margin trend. The upside potential to our target price remains one of the largest among our covered construction names – but so is the risk.

NRC Group (Buy, TP: NOK20.00) - Looking for a positive margin trend

Our focus in the Q2 report (due at c07:00 CET on 29 August) will be on signs of an EBIT-margin recovery, as we see upside potential in the stock if NRC can meet its EBIT targets. While its track record makes it a high-risk investment, we see a positive risk/reward if it can raise margins, and reiterate our BUY and NOK20 target price.

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...

Northern Lights

NRC Group (Buy, TP: NOK20.00) - Risk/reward still favourable

NRC remains a high-risk, but high-potential investment case, in our view. The rebuilding of the management teams, new risk control and continued ambitions for profitability seem to be progressing, but financial gains remain unproven. The (low season) Q1 results were weaker than we expected, while the CEO’s resignation marks a new risk to the case. However, we still see a favourable risk/reward, and reiterate our BUY and NOK20 target price.

NRC Group (Buy, TP: NOK20.00) - More time seems to be needed

We have cut our forecasts again, as we believe margins will not recover as fast as we had expected. Having pushed the recovery out in time, we have cut our EPS by 37% in 2023e, 17% in 2024e, and 10% in 2025e. The Q1 results, due at 07:00 CET on 24 May, will likely show the normal seasonal loss, but the guided NOK40m transaction gain should boost reported EBIT. Lowering our forecasts has led us to cut our target price to NOK20 (30). Given the low P/E, we reiterate our BUY, but highlight that NRC ...

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...

NRC Group (Buy, TP: NOK30.00) - Guiding for higher margins

Q4 EBIT was broadly in line with the profit warning on 2 February, and the 2023 guidance was in line with our estimate and Bloomberg consensus. We have updated our forecasts for the sale of two small divisions and a slight adjustment to our view of the margin recovery path. NRC remains a margin-recovery story in our opinion, which we still see as the main potential share-price catalyst; however, given its track record, we believe the market is looking for NRC to deliver on its guidance. We reite...