Public sector boom vs. private sector slump

– Although public infrastructure spending helps cushion the downturn, it will not be able to completely offset the slump in private sector projects. Great uncertainty also surrounds the period after 2010/11, when current stimulus programs will have run out. Based on our lower estimates, we reduce our target price from EUR 21 to EUR 16 and confirm our Hold recommendation.

– Based on the current order backlog and consolidation effects from companies acquired last year (the positive consolidation effect accruing in FY09 should be about EUR 1.1bn), we expect revenues to come in 5% higher than last year. Due to declining costs of raw materials (e.g. steel, diesel, concrete) and lower prices for subcontractors, earnings in 2009 should remain quite stable compared to 2008.

– As a result of significant declines in private sector projects and delays in public sector projects, the pie has gotten significantly smaller, which in turn leads to price pressure for new projects (which also applies to many public projects). For 2010, we therefore expect materially lower revenues in the Building Construction & Civil Engineering (70-80% private sector) segment and additional margin pressure. We assume that a recovery of this segment will not be realistic before 2011, by which point stable, long-term economic development should hopefully have been established.

– In contrast, the Transportation Infrastructures division (90% public sector) should profit from stimulus plans starting in 2H09 and continuing until 2011. At that point, it is unclear how much governments will cut back on public spending to consolidate budgets. We assume that there will have to be some followup schemes to prevent a serious slump in this sector.

– We cut our EPS estimate for 2009e to EUR 1.37 (previously EUR 1.71) and for 2010e to EUR 0.82 (previously EUR 1.28). Our initial 2011e EPS estimate amounts to EUR 0.85.