Norrhydro H1'25: Revenue recovers, balance sheet cannot take setbacks

Translation: Original published in Finnish on 07/15/2025 at 08:56 pm EEST

The H1 report met expectations for revenue recovery and also showed an improving earnings trend. Profitability scaling with growth was not quite in line with our expectations, which led to moderate estimate cuts in the result lines for the coming years. The demand outlook for the rest of the year is favorable, although the uncertainty caused by the trade war makes forecasting difficult. The elevated risk level stemming from a tight balance sheet position and high valuation multiples weighs on the risk/reward ratio. We lower our recommendation to Reduce (was Accumulate) and maintain our target price at EUR 1.40,

H1 was a step for the better, but profitability fell short of expectations

Revenue growth in H1 was 14% and, therefore, stronger than our expectations (our estimate 7%). Growth was tilted towards Q2 as the market picked up, but the company’s market share also improved. Market recovery has been supported by, e.g., the mining and material handling sectors, as well as segments related to the defense industry, but construction-related demand was still weak. The material margin improved significantly (+2.8 percentage points y/y), but at the same time, personnel costs increased by 19% due to the higher production volume. EBITDA improved clearly from the comparison period to 1.2 MEUR (H2’24: 0.8 MEUR), but fell short of our forecast (1.5 MEUR) due to stronger-than-expected growth in personnel expenses. Production efficiency may have suffered slightly in H1 due to the rapid recovery in demand, which created a need for overtime and fast material procurement.

Market outlook is quite positive as expected

Norrhydro reiterated its guidance for 2025, expecting growing revenue and EBITDA. We find it very likely that the company will reach its guidance, considering the low starting points. We assume demand will continue its upward trend in H2, based on the back-end loaded growth in H1. Global economic uncertainty may partly hinder customer demand, but we estimate the impacts to be moderate for now. Our growth forecasts for the coming years are primarily based on the conventional cylinder business, as NorrDigi's revenue remains low despite the positive development of electric cylinders. We raised our revenue estimates for 2025-27 by 3-4%, but at the same time, cut our EBITDA estimates by 6-15% due to weaker-than-expected scaling of profitability.

The balance sheet position remains challenging

Although we expect a clear upward trend in the company's earnings, net debt is forecast to remain at a high level in 2025-26e (9.6 and 9.0 MEUR). Despite improved earnings performance, the company was unable to significantly reduce its net debt in H1 (by some 0.1 MEUR), which was partly due to working capital being tied up as the market recovered. In our view, the debt level will not turn materially downwards unless the company can improve its profitability even from the 2025e level. A potential unexpected setback for the business, such as a sudden weakening of the market, could thus lead to new expensive financing solutions or a share issue.

The valuation is demanding based on current earnings, and coming years' forecasts are subject to significant uncertainty

The earnings-based valuation is high due to the share price rally and estimate cuts (EV/EBIT 2025: 26x, or 14x excluding NorrDigi’s estimated negative earnings impact of 1 MEUR). With our forecasts for the coming years, the valuation would moderate, but the forecasts require good market development and excellent cost structure management from the company, so we think it is still too early to rely on them. If NorrDigi succeeds in its growth efforts, it could turn the expected return attractive over a 5-year period, but these forecasts involve considerable uncertainty. In addition, balance sheet risks are currently weighing on the risk/reward ratio.