Sweco: Is Sustainability Good Enough?
Despite its Sustainability Positioning, Sweco Had A Mild Q2
Sweco had a relatively mild financial performance in Q2 2021 with a 2% yoy growth at cc/cs to SEK 5,643m (USD 649m). The company did not benefit from favorable comps (Q2 2020: +2% yoy at cc/cs). Sweco suffered from its lower utilization rate and headcount. It reported a similar story to AFRY: commercial and residential real estate is under pressure overall. However, dynamics at play depend on each geography. In the Netherlands, for instance, the real estate market is dynamic thanks to a shortage of individual houses.
Belgium As the Current Growth Engine
Sweco had a relatively homogenous performance across countries, with revenue growth ranging between -4% and +1%. Even Germany & Central Europe was up slightly (+1%) and seems now stabilized, after the revenue write-down of Q4. Belgium continued its excellent performance (+12%), accelerating over Q1 (+8%) and full-year 2020 (+6%). Sweco continues to acquire quarter after quarter in Belgium.
Sweco highlights its central role in help governments and the private sector towards a more sustainable future. Overall, decarbonization in the transportation, building, industrial water plant, and renewable sectors did well. However, the company has ~37% of its revenues in building and urban districts segments that seem to slow down the company’s growth.
A Matter of Service Mix
Compared to AFRY, Sweco appears as a less cyclical competitor. Its revenues were more stable during 2020 (Sweco: -2% vs. AFRY: -6.4%). The downside is that Sweco’s rebound in H1 2021 did not benefit from the rebound and favorable comps (Sweco: flat vs. AFRY: +3.5%). We think Sweco’s mild performance reflected its service mix rather than an underperformance in its key markets. Indeed, AFRY’s growth in its Infrastructure and Energy Divisions enjoyed similar growth rates. Sweco enjoys a higher adjusted EBIT margin (Sweco: 9.6% in H1 2021 vs. AFRY: 8.3%). Being a stable business focusing on sustainability and a tuck-in acquisition strategy clearly has benefits for Sweco.
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