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...

Selvaag Bolig (Sell, TP: NOK25.00) - Inventory spike set to delay prof...

In its Q1 KPI update, sold homes were marginally above our forecast, helped by sales to its main owner. However, of the 236 completed units, only 179 were delivered to clients. Unsold inventory climbed to an all-time high of 126 units at end-Q1 (ATH), and 56 completed sold homes are pending delivery. Due to the inventory build-up, we have cut our 2024e EPS by c29%, but have raised 2025e EPS by c42.5%. We reiterate our SELL and NOK25 target price.

Selvaag Bolig (Sell, TP: NOK25.00) - Q4 miss

Q4 earnings (IFRS and POC) missed our forecasts, and the proposed H2 2023 DPS of NOK1 was below our expectation. While we expect sales to gradually recover in 2024–2026 on lower mortgage interest rates, we do not see the company returning to historical profitability levels in our forecast period due to lagging profit recognition (IFRS – IFRIC15) and accumulated capitalised interest rate expenses raising land bank costs. We reiterate our SELL and NOK25 target price.

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 ...

Selvaag Bolig (Sell, TP: NOK25.00) - Long-tail impact

The Q4 trading update revealed weaker sales and starts than we forecast; however, we continue to expect sales to recover in 2024–2025, and almost get back to pre-pandemic levels by 2026, but earnings to only normalise beyond 2026 given weak 2022–2023 markets and long profit lead times. The valuation still looks stretched to us and consensus too bullish; we reiterate our SELL, but have edged up our target price to NOK25 (24).

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.

Selvaag Bolig (Sell, TP: NOK24.00) - Low-season beat in Q3

As expected, Q3 was low season, with few unit deliveries; the 18% EPS beat has a limited underlying impact on our full-year estimates, and we continue to expect EPS to remain below historical levels in our forecast horizon given tough markets. That said, the updated guidance on completed units means we have brought forward some earnings to Q4, prompting us to raise our 2024e EPS by 17.4% but cut 2025e EPS by 17,4%. We reiterate our SELL and have lowered our target price to NOK24 (25).

Selvaag Bolig (Sell, TP: NOK25.00) - Times are still tough

We are well below consensus ahead of the Q3 results (due at 08:30 CET on 9 November). With weaker-than-expected datapoints on net homes sold and unit starts reported at the beginning of this month, we have reduced our 2023e revenue by 2.4% and 2025e EPS by c3%. We believe Selvaag Bolig faces a tough outlook with falling EPS, as affordability ratios in housing markets and macroeconomic uncertainty hit demand for newbuilds. We reiterate our SELL and NOK25 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

Selvaag Bolig (Sell, TP: NOK25.00) - Q2 miss and DPS cut

Selvaag Bolig halved its semi-annual DPS versus last year to NOK1 (we forecasted NOK2). Q2 EBIT also fell shy of our forecast based on IFRS (completed units) as well as POC accounting (units under production). On the Q2 webcast, management indicated continued weak sales QTD, but that it expects falling construction costs to improve the market outlook. We continue to see downside risk to consensus 2023–2025e EPS and better risk/reward elsewhere in the sector. We reiterate our SELL and NOK25 targe...

Selvaag Bolig (Sell, TP: NOK25.00) - Weak market continues

Selvaag Bolig sold only (net) 79 homes in Q2, 47% below our forecast, as new housing sales remained weak on rising mortgage rates. With the outlook for even higher mortgage rates in H2 and rates set to remain higher for longer, we have cut our 2023–2024e sales and starts. We see downside risk to consensus EBIT ahead of the Q2 results (due at c07:00 CET on 10 August) and even more towards 2025e. On the consensus EPS risk, we reiterate our SELL and NOK25 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...

Selvaag Bolig (Sell, TP: NOK25.00) - Set for a declining EPS profile

SBO reported weaker Q1 earnings than we expected and, given the lagging reporting format (IFRIC 15), we are concerned the weak sales currently being seen in the market will lead to a declining EPS profile from now to 2025e. The company has started to sell on uncontracted building projects, expecting building costs to decline later in 2023e. However, with a drop in units sold and started, and our expectation of declining EPS, we reiterate our SELL and NOK25 target price.

Selvaag Bolig (Sell, TP: NOK25.00) - Fewer starts lead to lower profit...

According to Selvaag Bolig’s Q1 sales update, it sold 116 units during the quarter, falling only 42% YOY, thereby beating our -50% YOY forecast. However, the low start rate of only five new units has led us to cut our 2024 estimate. Nonetheless, as we expect a unit start bounce-back later in 2023, we have raised our 2025e EPS, reflecting started units completed at a later stage. Ahead of the full Q1 results (due at 07:00 CET on 24 May), we have reduced our Q1 forecast given that fewer than the 1...

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...

Northern Lights

Selvaag Bolig (Sell, TP: NOK25.00) - Adjusting operating model due to ...

The Q4 EBIT missed our forecast. Given the weak markets and rising inflation, SBO also introduced a temporary adjustment to its operating model by adding consumer clauses stating that construction starts are to be subject to construction costs. We remain concerned about a potential declining EPS profile for SBO due to weak markets and reiterate our SELL and NOK25 target price.

Selvaag Bolig ASA: 4 directors

Four Directors at Selvaag Bolig ASA sold 256,430 shares at between 34.000NOK and 35.040NOK. The significance rating of the trade was 57/100. 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 ...