Source: Inderes

NYAB's Q2 results clearly exceeded our expectations on both the top and bottom lines, as early-phase projects transitioned into execution faster than projected. In our view, the main positive surprise was the robust margin performance in the Swedish Civil Engineering operations, which demonstrated strong operational leverage on growing volumes. Supported by a record order backlog and recent landmark contract wins, we see the strong quarterly performance putting upward pressure on our near-term estimates.

Civil Engineering drove top-line acceleration

Revenue grew by 19% year-on-year to 162 MEUR, clearly beating our 149 MEUR estimate. The Civil Engineering segment largely drove the top-line acceleration, as its revenue increased by a robust 28% year-on-year to 138 MEUR. Growth was broad-based across both geographies: Swedish revenue rose 14% to 98 MEUR (Inderes estimate: 94 MEUR), benefiting from several new infrastructure railway projects with high production concentrated in the period. Meanwhile, Finnish revenue jumped 64% to 40 MEUR (Inderes estimate: 27 MEUR), driven by the ramp-up of a data centre project that is expected to keep supporting revenue as execution progresses. We expected volumes to recover, but the pace at which early-phase projects transitioned into execution in Sweden, as well as strong growth in Finland, exceeded our projections. In contrast, Consulting revenue declined 13% to 25 MEUR (Inderes estimate: 28.5 MEUR), as the number of assigned consultants fell year-on-year amid continued selectivity and lower activity in parts of the consulting market. Meanwhile, group order intake remained robust at 181 MEUR, yielding what we consider a healthy book-to-bill ratio of 1.1x. Consequently, the Civil Engineering order backlog reached a new record of 502 MEUR, up 18% year-on-year. We view this absolute backlog level as providing strong visibility for the coming quarters.

Operating leverage fueled margin expansion

Operating profit (EBIT) amounted to 8.3 MEUR, surpassing our 6.9 MEUR estimate and translating to a 5.1% margin. Higher production volumes improved the company's operating leverage, which, combined with the company's selective growth in niche segments at more attractive margins, was the primary driver behind the margin expansion. The Civil Engineering segment demonstrated strong execution, improving its operating margin to 6.3% (5.3%) and growing operating profit by 52% year-on-year. The Swedish operations stood out at a very strong 7.7% margin (5.8%), while Finland's margin was more modest at 3.1% (2.9%), held back by competitive market conditions, the completion of a lower-margin energy project, and investments in new hires to support future growth. Consulting profitability softened, with its operating margin declining to 2.1% (2.9%), albeit above our expected margin of 1.4%, partly reflecting non-recurring costs tied to the ongoing integration of the Norwegian operations, from which positive effects are expected in the coming quarters. Further down the income statement, net income of 7.7 MEUR also clearly exceeded our 5.0 MEUR estimate. The company generated 1.8 MEUR in free cash flow (Q2'25: 5.5 MEUR), which reflects typical seasonal working capital dynamics during a period of high production ramp-up. Management also noted that several assignments in its portfolio remain in early phases, with potential to develop into substantial execution contracts, which we believe was a contributing factor behind the year-on-year decrease in free cash flow.

Favorable outlook sets the stage for a strong finish to 2026

Beyond the record backlog, the company is pursuing several early-phase assignments whose estimated potential execution value stood at ~600 MEUR at quarter-end (down from ~700 MEUR in the prior quarter), reflecting the net effect of new assignments, revised estimates, and projects progressing into execution. Notably, these potential contracts are not included in order intake or the backlog. The company noted a continued very favorable outlook across energy (power grid infrastructure), transport infrastructure, and industrial development, especially in Sweden. At the same time, they described the Norwegian offshore market as remaining soft. Given the strong earnings beat in Q2, the record-high order backlog, and the strong order intake following the quarter's close, we anticipate upward pressure on our estimates.