Kreate Q4 next Wednesday: Towards a better year

Translation: Original comment published in Finnish on 1/24/2024 at 7:07 am EET.

Kreate will publish its Q4 results on Wednesday, January 31. We expect revenue growth to slow significantly towards the end of the year, in line with the decline in the order book. We also expect profitability to decline due to cost pressures and the cost burden of legacy projects. We do not expect market activity to reach the levels of previous years, which will be reflected in a further decline in the order book in the fourth quarter. For 2024, we expect strong earnings growth as the exceptional cost pressures abate, a view that should be supported by the guidance and the market outlook.

Revenue continues to grow

We expect Kreate's Q4 revenue to increase by 4% year-on-year to 86.5 MEUR (Q4'22: 83.2 MEUR). Revenue growth will be driven by the order book (Q3'23: 223 MEUR) and ongoing large projects. The accumulation of revenue may have been affected by the challenging winter conditions, which may have delayed revenue recognition. The order book was down by more than 20% in Q3, but we expect revenue recognition in Q4 to keep the top line growing. However, Kreate has been growing at an average rate of 26% over the previous quarters, so the slowdown in revenue growth is clear in Q4. For the full year, we expect revenue to grow by 19% to reach the upper end of the guidance range at 326 MEUR (guidance 2023: 300-325 MEUR).

Margins still under pressure

We expect adjusted EBITA to be flat at 2.2 MEUR (Q4'22: 2.3 MEUR), but the margin to deteriorate to 2.5% (Q4'22: 2.8%). We expect the profitability development to be positively impacted by higher volumes, but negatively impacted by general cost levels and increased competition. Even the non-indexed projects, which will be completed by the end of the year, may still have an impact on profitability. For the full year, we expect Kreate’s adjusted EBITA to decrease to 7.3 MEUR (2022: 8.8 MEUR), which is at the lower end of the guidance range (7.0-8.5 MEUR). We full-year EPS to decrease to EUR 0.40 and the dividend to decrease to EUR 0.30 per share.

Guidance should indicate earnings growth

Kreate's guidance for 2024 should signal an improvement in profitability after two weak years. For the current year, we expect revenue to decrease by 6% to 306 MEUR, but EBITA is expected to increase by 30% to 9.6 MEUR (adj. EBITA-%: 3.1%). Meeting these expectations will likely require a pick-up in market activity towards the end of the year, a strong order book, the completion of old cost-intensive projects in Q4'23 and moderation in the overall construction cost burden. We estimate that the order book will continue to decline in the early part of the year (H1), but instead of revenue generation, we see the focus for Kreate this year being on improving profitability.