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...

AF Gruppen (Sell, TP: NOK100.00) - Expectations look too high

We continue to see downside risk to consensus, both short-term ahead of the Q1 results (due at 07:00 CET on 15 May) and longer-term (2024–2026e). After a 2023 EBIT margin of 2.5%, consensus is for 4.8% in 2024 and 5.2% in 2025. We believe this is too optimistic, and reiterate our SELL. However, we have raised our target price to NOK100 (95) on increased peer valuation.

AF Gruppen (Sell, TP: NOK95.00) - Q4 disappoints

Following the disappointing Q4 results, explained by lower Betonmast, Sweden, and Offshore margins than we forecast on project writedowns in all three, we have lowered our 2024e Sweden and Betonmast EBIT margins, and in turn cut our group 2024–2026e EPS by c3–4% and our target price to NOK95 (100). We reiterate our SELL.

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 ...

AF Gruppen (Sell, TP: NOK100.00) - Valuation still too high

Our Q4 forecasts are broadly in line with consensus, but we find consensus too bullish long-term. The company has already guided that no dividend will be paid for H2 2023. We find the valuation premium versus peers too high based on P/E, despite the share price decline over the past 12 months. We reiterate our SELL but have raised our target price to NOK100 (95) on updated estimates and peer valuations.

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.

AF Gruppen ASA: 1 director

A director at AF Gruppen ASA bought 50,000 shares at 110.300NOK and the significance rating of the trade was 65/100. 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 clear...

AF Gruppen (Sell, TP: NOK95.00) - No longer in line with track record

While AF Gruppen reported some of the highest and most stable EBIT margins in the sector during 2012–2021, we believe the results from 2022 and more so from Q3 have shown the company is not immune to market risks. The weak Q3 has prompted us to cut our forecasts 2023-25e, as we expect it to take some time to tackle the soft profitability. We continue to see downside risk to 2023–2025e consensus EPS. We reiterate our SELL and have cut our target price to NOK95 (105).

AF Gruppen (Sell, TP: NOK105.00) - Valuation still seems stretched

We are 3% below (thin) consensus on Q3 revenues, but 18% below on EBIT and 21% below on adj. EPS. We view AF Gruppen’s exposure to real estate-related markets as a negative in the current macroeconomic environment, and thus expect weak order intake. As the valuation still seems too high in our view, we reiterate our SELL and NOK105 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...

Northern Lights

AF Gruppen (Sell, TP: NOK105.00) - Above our forecast, but below conse...

AF Gruppen reported EBIT and EPS above our estimates, but still well below consensus. We continue to see consensus risk on EPS and EBIT. With downside risk to consensus for 2023–2025e EPS, we reiterate our SELL, but have raised our target price to NOK105 (100) on our increased forecasts.

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...

AF Gruppen (Sell, TP: NOK100.00) - High order intake, but consensus an...

AF Gruppen looks set to report one of its highest ever Q2 order intakes (results due at c07:00 CET on 25 August), with cNOK7.3bn announced in orders QTD. We continue to find the P/E premium versus peers too high and believe consensus is too bullish on an EBIT margin recovery on the Q1 profit warning and a falling EBIT margin in recent quarter; we reiterate our SELL and NOK100 target price.

AF Gruppen (Sell, TP: NOK100.00) - Q1 weak – as warned

In line with last week’s profit warning, the Q1 results were weak, hit by project losses in Sweden. Still, the company proposed a higher semi-annual dividend than we forecast, and we continue to expect dividends to exceed EPS in 2023, despite it now having a net debt position. However, while we believe project losses as seen in Q1 and in Q2 last year are always a risk in construction, we do not find this well enough reflected in the valuation, with a too-high P/E premium to peers. We find a bett...

AF Gruppen (Sell, TP: NOK100.00) - Q1 profit warning

AF Gruppen issued a Q1 profit warning after market close on 4 May, stating it would book project losses of ~NOK230m in Sweden. It also said it expects just “slightly positive operating profit for Q1 2023”. Following the update we have cut our 2023e EPS by c26%, also reflecting the remaining production value in loss-making projects and a weaker margin in Building (Norway), which we believe was part of the reason for the comment on Q1 EBIT. We continue to find the P/E premium too high; we reiterat...

AF Gruppen (Sell, TP: NOK105.00) - Valuation still too rich versus pee...

AF Gruppen’s share price has fallen by 29% in the past 12 months, but so too have peers’, leaving its valuation still looking rich, in our view. Our Q1e EPS is marginally below Infront consensus (results due at 07:00 CET on 12 May). Based on its P/E premium versus peers and our below-consensus 2023–2025e EPS, we reiterate our SELL and NOK105 target price.

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...