Fitch projects stable outlook for European construction industry

Fitch Ratings has given the European Engineering and Construction (E&C) sector a ‘neutral’ outlook, citing strong order backlogs and a robust project pipeline, buoyed by public infrastructure demand.

According to Fitch, E&C companies are benefiting from record-high order books, ensuring revenue visibility, and improved risk management practises during post-pandemic period, including the use of cost-plus and target-cost contracts.

The report anticipates a slight easing in labour costs in 2025, due to lower inflationary expectations, though skilled labour shortages remain a key challenge.

Larger contractors are better positioned to navigate these challenges, with expected stable earnings and a 0.2 per cent increase in median EBITDA margins for 2025.

Fitch also forecasts a rise in free cash flow (FCF) margins to 1.3 per cent in 2025, driven by improved EBITDA margins and high demand.

Sector leverage is expected to improve as large E&C companies benefit from profitability gains and lower gross debt, with median EBITDA leverage set to decrease to 1.2x by the end of 2025.

Attribution: Fitch

Subediting: M. S. Salama