Solwers H1'24 flash comment: Growth sharper than expected, profitability under greater pressure than anticipated

Translation: Original comment published in Finnish on 8/30/2024 at 9:08 am EEST.

This morning, Solwers published its H1 report. The development in the first half of the year was mixed, as the brighter-than-expected revenue performance in a sluggish market was not reflected in the company's result as expected, with profitability declining more than expected. Based on the report and the outlook, there will be little pressure to change our revenue forecasts, but some pressure on our earnings forecasts.

Top-line development more positive than we forecast

In H1, Solwers’ revenue grew by about 20% from the comparison period to 39.9 MEUR. This was above our forecast of 38.1 MEUR. Our forecast was based on inorganic growth, while we expected organic revenue to decline by 4% in H1 due to the weak market situation. Based on the forecast overshoot, we therefore estimate that organic growth was largely stable, which is also in line with the company's comments.

Profitability fell more than we expected

In H1, Solwers generated EBITA of 3.3 MEUR, which was below our forecast of 3.6 MEUR. As a result, the company's profitability fell significantly more than we expected from the comparison period and remained at an adequate level of 8.2%. There were no major deviations in the cost structure compared to our expectations, but according to the company, the cost structure has partly reflected costs related to the possible transition to the main list. In addition, according to Solwers, some of the companies acquired through acquisitions have performed better than expected, which has resulted in additional purchase prices being applied to the cost structure. Reflecting this operating result and slightly higher than expected net financial expenses, H1 earnings per share came in at EUR 0.07, below our forecast.

The outlook was repeated

Solwers reiterated its outlook for the current year, whereby the business environment is expected to improve toward the end of 2024 as the market picks up in general. In addition, the company has a good order book in the public sector and infrastructure projects and long assignments also in hospital and school design projects. Comments suggest that inorganic growth will continue to remain active for the rest of the year.

Our forecasts for H2 assumed stable revenue growth as the market gradually picks up, and we do not expect any major changes to be necessary. We expect upward pressure on our cost structure forecasts, so our preliminary assessment is that there will be some downward pressure on our earnings forecasts, especially in the short term.