25.08.2017

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PORR confirmed at HOLD, TP EUR 27 - Cutting estimates and target price after profit warning

- In the aftermath of the profit warning we cut the target price to EUR 27 from EUR 37.5 and maintain the HOLD rating
- Having previously guided for higher earnings, PORR now expects the 2017 pre-tax profit to be slightly below the previous year
- The downward revision was justified by cost overruns in Qatar and M&A related costs. Moreover it also seems that PORR was able to pass on rising subcontractor prices in Germany only insufficiently or with a delay
- We cut EPS by 22% on average to EUR 1.80, EUR 2.10 and EUR 2.33, respectively. We have also lowered our net cash/debt forecasts owing to higher (M&A)-capex and NWC assumptions
- Although the stock has substantially de-rated over the last months amid arguably unconvincing news-flow we do not yet see the foundations in place for an inflection and require tangible evidence regarding an improved scope to tackle the margin and return dilution from M&A and the considerable organic expansion

In the aftermath of the pre-released 2Q results that were accompanied by a profit warning we cut the target price to EUR 27 from EUR 37.5 and maintain the HOLD rating. Having previously guided for rising output being accompanied by higher earnings, PORR now expects the 2017 pre-tax profit to be slightly below the previous year. The downward revision was triggered by cost overruns in Qatar, where the sanctions have caused higher logistics and supply costs (to our understanding it is not yet clear if and to what extent PORR will be reimbursed by its clients) as well as by high transaction and integration costs for the recently acquired companies (though these should have been largely foreseeable, in our view). Moreover it also seems that PORR was able to pass on rising subcontractor prices in Germany only insufficiently or with a delay. The guidance heralds that 2017 EBT could be in the range of EUR 80-85 mn (~20% below consensus) but also implies that 2H pre-tax profit would be up yoy, thus indicating that the aforementioned burdens should have been basically digested in 1H. While the outlook for top line growth remains good (actually 2017e output should be higher than previously assumed) the margin will substantially weaken. Although the stock has substantially de-rated over the last months amid arguably unconvincing news-flow (e.g. quarterly results rather below estimates, weaker cash conversion, share placement) we do not yet see the foundations in place for an inflection and require tangible evidence regarding an improved scope to tackle the margin and return dilution from M&A and the considerable organic expansion.
 

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