GRK: Expected return sufficiently good again

Translation: Original published in Finnish on 9/11/2025 at 7:07 am EEST.

We reiterate our EUR 14.00 target price for GRK and raise our recommendation to Accumulate (was Reduce). Since news flow regarding the company and the infrastructure construction market in Finland and Sweden has been fairly scarce, we have not made any changes to our earnings forecasts for the company. However, GRK's share price has fallen slightly in recent weeks, making the short-term expected return on the share attractive again. 

No major news in recent weeks

There has been relatively little news about the company and the infrastructure construction market in Finland or Sweden. The company announced an organic expansion into Southern Sweden and minor change negotiations in its Finnish rail construction business. As far as we know, the company has neither won nor lost any significant tenders, nor have any major alliance projects progressed from development to implementation. Overall, we believe that the demand outlook for infrastructure construction is fairly good, driven by the green transition, urbanization, the need to improve defense and critical infrastructure, and the reduction of the repair debt. We also consider GRK to be competitive, particularly in its current core markets (Finland, northern Sweden and Estonia), and therefore believe that the company has the potential to gain market share.

We made no estimate revisions

GRK has provided guidance that its revenue for the current year will be 730-800 MEUR and its adjusted EBIT will be 45-55 MEUR. We haven’t made any adjustments to our estimates. Considering the strong development in H1, the still quite good order book, and projects already won but not yet included in the order book (over 400 MEUR at the end of Q2), we don't find the guidance already raised in June to be particularly demanding. We now expect GRK's adjusted EBIT to be slightly above this year's guidance range, so a positive earnings revision towards the end of the year would not be a surprise.

In terms of revenue, we expect 2025 to remain GRK's peak level, at least without new acquisitions, as it will likely be challenging to quickly compensate for the dip in Swedish revenue caused by the large Stegra project that will slow down and eventually end next year. In Finland, we expect GRK to grow at least at the market's slow pace, whereas in Estonia, significant railway projects are driving more rapid growth than this. Overall, the demand outlook for infrastructure construction seems quite positive in all of GRK's operating countries. In our forecasts, the group's earnings will also decline in 2026-2027, after which the company should return to a growth path. The decline in earnings in our estimates is also influenced by the profitability margin normalizing slightly from excellent levels due to the decline in revenue. In 2028, however, we expect the company to exceed its revenue target of 750 MEUR and achieve the targeted adjusted EBIT margin of over 6%. The main risks to our forecasts are project risks, individual large projects, intensifying competition, and the possible consequences of the Finnish competition investigation.

Expected return sufficiently good after slight decline in share price

Based on our GRK estimates, the P/E ratio for 2025 is 12x, while the EV/EBIT multiple, accounting for the oversized cash position, is approximately 7x. We expect dividend yields for the next few years to be around 5%. Thus, valuation does not look stretched with this year's multiples, but at the company's normal earnings level, which our 2026-2027 forecasts better reflect, the stock is already priced at the lower end of our approved ranges (2026-2027e EV/EBIT 8x-9x and accepted range 9-12x). Consequently, we see slight upside in the valuation, which, together with the dividend yield, brings the expected return back above the required return. Our view of moderate upside for the stock is also supported by the DCF value, which is roughly in line with our target price.