Source: Inderes

 Translation: Original published in Finnish on 5/21/2026 at 9:20 am EEST

This morning, Solwers published its Q1 business review. The company's revenue grew moderately, which was in line with our expectations. However, the bottom line fell slightly short of our expectations and the subdued level of the comparison period. We find management's warning in the report that the company may not achieve the original covenant level of its financing agreement at the end of June to be somewhat concerning. For this, the company needs to get its earnings growth engine running quickly.

Earnings turnaround has yet to materialize

Solwers' Q1 revenue grew by 2.9% year-on-year to 21.0 MEUR. The development was in line with our 21.2 MEUR estimate. According to the company, January was burdened by the holiday season and a low number of effective working days, but activity and the order book picked up slightly as the quarter progressed. We expected the company's adjusted EBITA to remain at the comparison period's level of 0.4 MEUR, but it decreased to 0.27 MEUR (Q1’25: 0.43 MEUR). The adjusted EBITA margin thus remained at a modest 1.3%. According to the company, earnings improvement was still hampered by continued fierce price competition and the weak construction cycle. The company has continued adjustment measures, particularly in architectural design and industrial services, but so far these measures have not been sufficient to turn the earnings trend positive.

Covenant risk emerging

The worrying news in the report concerned the company's financial position. Solwers has a waiver in effect until the end of June 2026 regarding its financial covenants. Although the covenant remained within the waiver limits on the March measurement date, management identified a risk that the original net debt/EBITDA covenant level (below 3.5x) might not be achieved by the June 30, 2026, review date. At the turn of the year, the company was ahead of schedule in this regard, with the ratio falling to 4.0x, but now the target seems to have slipped a bit further away. We have repeatedly emphasized in our previous comments that the company's elevated leverage requires earnings growth to decrease. As the Q1 result fell short of our expectations, this risk is now materializing. The company announced that it would take proactive measures to manage the situation, but we believe this situation increases the stock's risk profile in the short term.

Outlook unchanged, but a turnaround is needed

Solwers reiterated its guidance for the current year, expecting EBITA profitability to strengthen from the previous year and performance to improve as the year progresses. Also, the return on capital employed (ROCE), reported as a new official metric, decreased to 2.9% in Q1 (Q1/2025: 4.9%), which highlights the Group's challenges in generating sufficient returns on its acquisition-driven capital at the bottom of the cycle. Although the order book has strengthened slightly, we believe that achieving the guidance and fulfilling the covenant terms will require a clear improvement in performance during the rest of the year.