Translation: Original published in Finnish on 5/5/2026 at 7:24 am EEST.

Componenta, a contract manufacturer of components for the engineering industry, achieved a significant profitability turnaround in the completed financial year. We expect large orders from the Finnish Defense Forces and strong momentum in the energy industry to drive substantial earnings growth in the coming years. In our view, the share already prices in some growth, but the earnings growth outlook makes the risk/reward profile attractive. Reflecting this, we reiterate our price target of EUR 5 and our Accumulate recommendation.

Structural growth drivers for revenue in the 2020s

Componenta's business consists of mature and fragmented machining and foundry operations, serving as clients major Finnish engineering companies. Componenta serves customers in the energy, defense equipment, machine building, agricultural machinery, and forest machine industries. Demand in customer industries is cyclical, meaning that changes in the global economic environment, such as interest rate levels, typically have a significant impact on Componenta's revenue. In recent years, however, the asynchronous nature of segment cycles has significantly smoothed the fluctuations in Componenta's revenue. Demand from the defense equipment and energy industries, in particular, has seen significant structural growth. Growth is supported by the development of European defense capabilities, the green transition, and a surge in data center investments. Supported by these demand drivers and successful business restructuring, the company achieved a significant turnaround in profitability in fiscal year 2025. However, the company's ambition level is already significantly higher in the short term, as it aims for organic revenue of 150 MEUR and EBIT margin of 5% by FY2027 (2025: 116 MEUR and 3.7%). The company's strategy also includes M&A, which in recent years have successfully shifted the Group's focus from capital-intensive and easily loss-making foundry business towards the machining business, which we believe offers more attractive value creation opportunities.

Growth in production volumes supports the bottom line

We forecast Componenta's revenue to grow at a rapid annual rate of 12% by 2028. The aforementioned strong demand outlook in the energy and defense equipment industries supports the growth rate. For the defense equipment industry, our forecasts are on solid ground, as Componenta has announced orders totaling 80 MEUR from the Finnish Defense Forces, of which we estimate approximately 20% have been delivered to date. In the coming years, we also expect demand in the agricultural machinery industry, which is important for Componenta, to recover from the very low levels of recent years, supporting revenue development. We expect revenue growth to translate into strong earnings growth as operational efficiency improves and financial expenses slightly decrease, leading us to forecast a doubling of adjusted EPS by FY2028 The risks in our forecast are weighted towards weaker-than-expected demand development in cyclical industries.

Expected return piques interest

In light of the realized valuation multiples, we believe the market is pricing in earnings growth for the coming years (2025 P/B 1.3x, P/E 19x, and EV/EBITDA 6x). Our forecast for rapid earnings growth makes the valuation attractive in the coming years (2027–2028 P/E 10–8x and EV/EBITDA ~4x). We see upside potential in these multiples, considering the healthy demand drivers extending to the end of the decade in certain segments. We expect the dividend yield to provide slight support to the return expectation (2–3%). Our DCF model's fair value is at the target price level of EUR 5. We believe that the credible earnings growth drivers in the coming years make the share's risk-reward ratio attractive at its current valuation.