UPDATE 2-Bilfinger turns to services as Q3 profit sinks

* Net profit drops 87 pct to 7 mln euros

* Mulls Australian IPO

* Keeps 2009 outlook

* To focus on higher-margin services

* Bilfinger shares up 8 pct

(Adds analyst's comment, background, shares)

By Greg Roumeliotis

AMSTERDAM, Nov 10 (Reuters) - German construction company Bilfinger Berger (GBFG.DE) reported a smaller-than-expected 87 percent drop in third-quarter net income on Tuesday and said it would move more into services, sending its shares up 8 percent.

Bilfinger also said it is exploring an initial public offering (IPO) for its Australian unit, following in the steps of rival Hochtief (HOTG.DE), which is looking to IPO its concessions unit. [ID:nL9414873]

Bilfinger's shares were up 8 percent to 52.2 euros at 0825 GMT, becoming the biggest gainer in the DJ construction and materials index .SXOE, which was down 0.45 percent.

"The company has posted positive Q3 performance figures and the IPO would be a pretty interesting move that could raise up to 1 billion euros," WestLB analyst Ralf Dorper said.

Net profit in the third quarter fell to 7 million euros on an output volume of 2.74 billion euros. Analysts in a Reuters poll were expecting net income of 2.6 million euros on an output volume of 2.69 billion euros.

It reiterated its 2009 outlook for earnings before interest and tax (EBIT) between 210 million and 230 million euros and net profit in the range of 110 million to 120 million euros.

Germany's second-largest builder is following peers such as France's Vinci (SGEF.PA) and Britain's Balfour Beatty (BALF.L) that are building up their higher-margin services divisions and looking for less exposure to the cyclical and highly competitive construction business.

Bilfinger Berger said late on Monday it intends to cut down its construction business, which had an output volume of approximately 6 billion euros in 2008, to a level of around 2 billion euros in the mid-term.

It added that while construction would remain one of its core businesses, a shift in focus to services would lead to an improved risk profile and greater profitability. It plans to plow proceeds from the Australian unit IPO to its services division, it said.

The company has also been engaged in a cost-cutting drive, scaling back investments in property, plans end equipment in the first nine months of the year by 41.5 percent and in financial assets by 59.2 percent. (Reporting by Greg Roumeliotis; Editing by Erica Billingham and Hans Peters)