We issue a Hold recommendation for Mercor with a 12M target price at PLN 26.40 per share (13.8% upside potential). Recently, our concerns about the cubature construction market have materialized, and the slowdown appears to be deeper than we expected.
Despite that, Mercor is well prepared for more difficult times and should maintain its strong market position. However, we decreased the target price in our recommendation, and we base our opinion on:
■ The current situation in the cubature construction industry is not beneficial for the Company. The area covered by permits issued for the construction of non-residential buildings in Poland was lower in 2023 by 14.8% y/y, but the decline in 4Q’2023 was only 4.4% y/y, which may constitute a premise for the upcoming trend reversal. However, the circumstances in the warehouse and industrial buildings in Poland have deteriorated due to an increase in the vacancy rate.
■ The weaker economic situation in the industry resulted in a decline in the value of orders in the Company, which was especially visible in the recent two months. Therefore, we expect revenue to decline in 2024/25e by 11.8% y/y to PLN 520mn.
■ Although the Company will not be able to repeat the record-high results from FY 2022/23, the generated results will still be decent. Mercor should maintain a double-digit EBITDA margin despite more difficult economic conditions
