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...

Skanska (Buy, TP: SEK225.00) - Solid Q1 order intake expected

With no asset divestments of Commercial Development (CD) projects, we expect Q1 group EBIT to be below Infront consensus (results due at c07:30 CET on 8 May). However, with the strong announced orders, we expect a beat on order intake. KPIs in Residential Development (RD) are likely to be weak, we believe, but up from the all-time lows last year. We reiterate our BUY and SOTP-based target price of SEK225.

Skanska (Buy, TP: SEK225.00) - Q4 raises our SOTP

The Q4 cash release of working capital and divestments raised Skanska’s adjusted cash position more than we expected, and in turn our SOTP and target price. As warned, the Q4 results were affected by asset writedowns in Residential Development (RD), Commercial Development (CD) and Investment Properties (IP), but the underlying construction operations did better than we expected. We reiterate our BUY and have raised our target price to SEK225 (215).

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 ...

Skanska (Buy, TP: SEK215.00) - Q4 set to be a mixed quarter

Q4 was an eventful quarter, with 23 announced orders, one order termination, five asset sales, and a SEK2bn profit warning on its development assets. We still expect good volumes in construction, but low new housing sales in RD. However, we forecast a new housing recovery by 2026 with lower interest rates. We continue to use a discount on Residential and Commercial Development (CD, RD) and Investment Properties (IP), assuming falling asset’ values, but our SOTP still suggests upside potential in...

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.

Skanska (Buy, TP: SEK205.00) - Set to remain selective

Skanska repeated its financial targets at its CMD on 21 November, but noted the weakened transaction market given rising interest rates reducing ROCE contributions from Residential Development (RD) and Commercial Development (CD), with growth here paused. However, Skanska said it would still develop commercial real estate and residential projects, aiming “to be there” when the transaction market recovers. We have made no forecast changes and reiterate our BUY and SEK205 target price.

Skanska (Buy, TP: SEK205.00) - Impairments hit Q3; we still see value

With non-cash impairments of SEK793m in Residential Development (RD) and Commercial Development (CD), Q3 EBIT missed our forecasts; however, with the stock trading well below invested capital, we argue this should is already reflected the share. Q3 order intake was below our estimate, with record-low unannounced orders. We have cut our 24e EBIT by c4,5%, but have raised 24/25e EPS on our revised net financial forecasts. We reiterate our BUY, but cut our target price to SEK205 (210).

Skanska (Buy, TP: SEK210.00) - SOTP support, but weak Q3e

We see downside risk to consensus Q3e, as only one asset was sold in Commercial Development (CD) in the quarter. However, as Skanska is cash-positive and invested in unlevered assets in Residential Development (RD), Commercial Development (CD), and Investment Properties (IP), we find fundamental value from a SOTP perspective. Despite converting asset values to cash taking time in the current climate, as residential and commercial building markets continue to struggle with high interest rates, we...

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...

Skanska (Buy, TP: SEK210.00) - Order backlog at all-time high

While Q2 EBIT just missed our estimate and consensus, EPS outperformed by 9% and 18%, respectively, mainly due to financial gains, lower tax costs, and share buybacks. Order intake of SEK63.15bn was also 13–15% above expectations, and the backlog hit a record high. However, as feared Residential Development (RD) house sales were weak, halving YOY to 343 units. That said, we continue to like Skanska’s strong balance sheet and valuation, and reiterate our BUY and SEK210 target price.

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...

Skanska (Buy, TP: SEK210.00) - Well positioned in a tough climate

Unlike most of its peers with commercial or residential assets and development projects, Skanska is debt-free, with SEK9.5bn in cash as of end-Q1. While we expect a likely lack of Commercial Development (CD) asset sales to pose downside risk to consensus Q2 EBIT, we see upside potential in our SOTP, even using solid discounts to asset values. We also see upside potential to consensus Q2 order bookings. We reiterate our BUY and SEK210 target price.

Northern Lights

Skanska (Buy, TP: SEK210.00) - Values should surface eventually

Skanska (SKAB SS, Buy) - Values should surface eventually (24 pages)

Northern Lights

Skanska (Buy, TP: SEK215.00) - EPS risk, but value support

Given the weak housing market and low property transaction volumes on rising interest rates, we see consensus Q1e EPS downside risk. However, unlike peers, Skanska has a solid, cash-positive balance sheet, and we see SOTP value support in the event of a cash release of invested capital. Ahead of the Q1 results (due at 07:30 on 4 May), we are 10% below consensus on EPS, and believe we could see weak KPIs in Residential Development (RD). Nevertheless, given the fundamental value support, we reiter...

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...