Translation: Original published in Finnish on 5/5/2025 at 8:56 am EEST.

Componenta will publish its Q1 report on Friday. Supported by a business acquisition, we expect a clear increase in revenue and EBITDA from a weak comparison period. We lowered our estimates for the end of the year as the agricultural machinery market developed weaker than expected, but for the coming years we made slight upward revisions to our estimates, reflecting the healthy growth prospects of other customer segments. We reiterate our target price of EUR 3.4 and our Reduce recommendation.

A growth quarter expected

Componenta's order book was 15% higher at the beginning of Q1 than a year ago, largely reflecting the positive impact of the acquisition. Supported by the order book, we expect Q1 revenue to have increased by 20% to 28.3 MEUR. We estimate organic growth to have settled at around 4%, as the market situation is recovering slowly. We believe that the weak agricultural machinery market will hamper growth, but we expect other customer segments to develop more positively. We expect Q1 EBITDA to have strengthened to 1.9 MEUR (6.7% margin) from a weak comparison period. The improvement in profitability is largely due to the disappearance of the comparison period's headwinds (e.g. the ramp-up of serial production).

Acquisitions support growth

For the financial year 2025, Componenta guides that revenue and adjusted EBITDA will improve from the previous year. We expect revenue to grow by 15% to 112 MEUR, supported by acquisitions, and EBITDA to strengthen to just under 8 MEUR (7.1% EBITDA margin) from a weak comparison period (2024: 4.9 MEUR / 5.1%).

Componenta's outlook is negatively affected by what we believe to be its largest customer, AGCO's, significantly decreased tractor sales and production in Q1'25 (Q1'25 European tractor sales -17% and global production -33%). The share of Componenta's revenue from its largest customer already decreased sharply in 2024, and we do not expect the decline to stop during the first half of 2025.

However, Componenta's growth this year will be driven by the 50 MEUR shell-tail assembly order from the Finnish Defense Forces (2025-2028). Additional growth may come from the defense sector due to generally increased defense spending. More broadly, the Q1 growth prospects for Finnish machinery companies are moderate, but instability in international trade and tariff decisions make forecasting challenging, although Germany's upcoming stimulus package will improve the situation.

We lowered our forecasts for the current year as the agricultural machinery market developed worse than expected. At the same time, we revised our financial expense forecasts upwards to reflect the fact that the company had sold a larger portion of its receivables to a financial institution than we had anticipated, which will result in significant expenses (we estimate ~10% for the receivables sold). Similarly, we have revised our forecasts for the coming years upwards to reflect the improving demand outlook for the engineering and defense sectors.

Expected return relies on earnings growth

Based on our 2025 and 2026 estimates, the EV/EBIT multiples, which take into account the balance sheet position, are 26x and 9x, respectively. In absolute terms, the multiples are high for the current year and not cheap for the next year either. The low level of the EBITDA-based valuation multiples (6x and 4x in 2025 and 2026, respectively) reflects, in our view, both Componenta's high level of investment and the attractiveness of the valuation should the company manage to improve its profitability beyond our forecast. The value of the DCF model is below the share price. Consequently, based on the valuation methods we use, the share's risk/reward ratio remains subdued.