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International Internet Magazine. Baltic States news & analytics Wednesday, 27.05.2020, 12:21

LHV says Merko's robust growth may be replaced by decline in 2019

BC, Tallinn, 09.08.2018.Print version
While the results of the listed construction group Merko Ehitus for the second quarter surpassed expectations, the outlook for next year is significantly weaker, Sander Danil, senior analyst at LHV said LETA/BNS.

"The second quarter results of Merko were somewhat better than expected, mainly as a result of successful sale of apartments and the company's own development projects. In addition, results are supported by major ongoing projects. Merko will keep going rather strong until the end of this year, but from then onwards the picture is not that nice at the moment," Danil told.


"The addition of new contracts has been relatively weak for several quarters and the order portfolio has been declining for three quarters in a row. If things go on this way, the company's sales may decline substantially next year compared with this year," Danil said.


The LHV senior analyst said that competition among general contractors is very intense and subcontractors are putting pressure on margins.


"If Rail Baltic materializes after all, the start of that project will probably change the state of play in the entire Baltic market, but until that happens tensions will remain. In the coming years Merko maybe will have to rely on its own property developments even more," he added.


Merko Ehitus saw its revenue for the first six months of 2018 increase 43 percent year over year while its profit for the period more than doubled. The volume of new construction contracts in the first half-year was lower than the volume of works performed, and the secured construction order book shrank.


In the first six months of 2018, the group entered into new contracts worth altogether 67.5 mln euros, including construction works on Hundipea port, Tsirguliina substation and phase II of the Tallink office building. As of June 30, 2018, the Merko Ehitus Group's secured order book amounted to 247 mln euros, compared with 387.5 mln euros at the end of June 2017.


Revenue totaled 183.7 mln euros in the first six months of the year, up from 128.8 mln euros in the same period a year ago. Net profit totaled 6.9 mln euros, compared with 3.2 mln euros in the first six months of 2017. Net profit for the second quarter grew 155 percent to 5.7 mln euros and revenue was up 46 percent at 103.3 mln euros.


Andres Trink, CEO of AS Merko Ehitus, said in his comments on the interim result that due to a rise in the construction input prices and tight competition on the general contracting market, it was not a goal in itself to raise construction volumes, and the company was focusing on the quality of construction services and improving profitability.

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