Segment Composition and Geographical Presence in the Construction Industry : A Study of Their Relationship with Market Valuation and Total Shareholder Return

Sammanfattning

Companies make strategic decisions regarding segment composition and geographical presence, which is particularly important in the construction industry where business conditions, risk structures and project characteristics differ over time. Therefore, firms in the construction industry often operate across multiple segments that vary in terms of risk levels, capital requirements, profit margins and cash flow structures. These firms also rely on local market conditions, regulatory approvals, contractors and suppliers across several markets. Previous research has examined how diversification and market expansion influence company performance within the construction industry. However, limited research has addressed how segment composition and geographical presence among international construction firms affect total shareholder return (TSR) and market valuation over time. This thesis aims to analyze the relationship between segment composition, geographical presence, market valuation and TSR within the construction industry. More specifically, the study investigates how the Swedish construction company Skanska and its peers have differed in terms of segment composition and geographical presence during the period 2015-2024. The study also examines how these differences have influenced TSR and market valuation over these years. To address the purpose of the study, a literature review and benchmarking study were conducted, comparing Skanska with eight international construction companies. Data were collected from annual reports, universal registration documents and statistical websites. The analysis was performed using established strategic frameworks, TSR, valuation multiples, value creation measures in terms of ROIC and WACC, as well as correlation and panel data regression analysis. The results indicate that there are differences between Skanska and its peers in both segment composition and geographical presence over the past ten years. Construction constitutes the core segment for all companies, although the degree of diversification varies. Companies with higher exposure to concessions and other higher-margin segments generally shows stronger long-term TSR and more consistent value creation from a descriptive comparative perspective. However, this relationship is not statistically supported in the regression results. Regarding geographical presence, most companies operate primarily within Europe and North America, however the level of internationalization differs between firms. The descriptive comparative analysis shows that more diversified companies tend to exhibit higher long-term TSR, however this is not supported by the regression results. Overall, geographical presence demonstrate weak explanatory power for TSR. In terms of valuation multiples, segment composition shows a weak relationship with valuation levels, where concession exposure is associated with somewhat higher P/B multiples compared to construction. Geographical presence exhibits mixed effects, with Nordic exposure being weakly associated with lower P/E multiples while on the contrary being stronger associated with higher EV/EBITDA multiples compared Europe. Overall, while certain patterns can be seen in the comparative analysis, these relationships can not be confirmed in the statistical analysis, indicating that TSR and market value may also be driven by broader macroeconomic and industry conditions.