The issuer rating is supported by Szinorg’s strong liquidity, healthy debt protection, and regional market visibility in Debrecen, a region with robust foreign direct investments and private demand for construction. The higher EBITDA contribution from the group’s real estate portfolio from 2023 on, alongside an expected stabilization of Scope-adjusted EBITDA margin at above 5% are credit-positive.

The rating is constrained by the group’s small size in a European context, which limits diversification – with activities concentrated in Hungary and cluster risk, with one contract representing more than 50% of the contracted backlog – and weakens its ability to mitigate economic cycles and to benefit from economies of scale.

The Stable Outlook reflects the improved share of contribution of real estate assets in the group’s EBITDA, which strengthens the company’s recurring income base and partially mitigates the volatility related to the construction business. The real estate assets deliver higher profitability margins, which should also counterbalance the margin of construction activities that remains under pressure. The Outlook also incorporates the commencing of five real estate projects in the first half of 2024 and successful completion of current construction backlog. It also assumes ongoing adequate access to external financing to fund the company’s business plan.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. On 1 February 2024, Scope affirmed the B issuer rating and changed the Outlook to Stable from Negative and affirmed the B+ senior unsecured debt rating.

Click here for the corresponding rating action release. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

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