Norrhydro Q4'25: Further evidence of earnings turnaround

Translation: Original published in Finnish on 2/20/2026 at 8:18 am EET.

The Q4 report strengthened our confidence in the earnings turnaround and mitigated risks related to the balance sheet. We believe the key near-term share price drivers are primarily related to the profitable growth of the conventional cylinder business, which could strengthen if the forestry and construction segments were to recover more robustly. NorrDigi is also likely to see progress, although the business is likely to remain relatively small and unprofitable in the next two years. We reiterate our Accumulate recommendation and raise the target price to EUR 1.70 (was EUR 1.60).

Margin development was reflected in a stronger balance sheet

Overall, Q4 was a good quarter, with profitability improving significantly and exceeding our forecasts. Revenue grew by a rather strong 16%, driven by growth in high-activity customer segments such as mining equipment and, on the other hand, the halt in declining demand in lower-activity segments such as forest and construction machinery. The earnings lines were stronger than we expected, and the relative EBITDA was as high as 11.7%, beating our estimate by 1.1 percentage points and the comparison period's level by as much as 4.3 percentage points. Profitability was particularly supported by volume growth, but the material margin also improved due to increased production efficiency, while personnel costs grew less than expected. Net debt at the end of the period was also lower than we expected, at 9.1 MEUR, or 3.4x EBITDA (2024: 9.6 MEUR, 7.6x EBITDA). The Board proposes to continue the capital return authorization (EUR 0.04/share), which could be used if the 2026 result develops strongly. However, debt reduction remains the company's primary priority for the use of funds.

Profitable growth is expected to continue

The company's 2026 guidance is for revenue of 30-32 MEUR (growth of 5-11%) and EBITDA of 3-4 MEUR (2025: 2.65 MEUR). The guidance was in line with our estimates, which is why operational forecast changes remained moderate (2026e revenue decreased by 2% and EBIT increased by 3%). Our current estimates (revenue of 31 MEUR and EBITDA of 3.4 MEUR) are close to the mid-points of the guidance ranges. We estimate that revenue growth will slow down (2025: 19%) because the comparison figures for 2025 are already more challenging to exceed in customer segments with healthy activity, and on the other hand, a clear turnaround is not yet in sight in industries experiencing a weaker economic cycle (e.g. forest industry and construction). The company described the market outlook as "slowly recovering." We also believe the company has gained market share and will increase investments in sales and new customer acquisition during 2026. We estimate that 2026 revenue will primarily be generated from conventional cylinders. The company's comments on the sales outlook for NorrDigi solutions were in line with our previous expectations. Revenue for electromechanical actuators (EMA) is expected to grow already this year, albeit from low levels. In MCC, testing of the excavator solution is still ongoing, and the start of sales has been delayed.

Earnings turnaround pushing valuation low

The ongoing earnings turnaround's progress is lowering valuation multiples and helping the company reduce the balance sheet risk caused by its relatively high indebtedness. We believe the 2026 earnings-based valuation of EV/EBIT 11x is reasonably attractive, considering the turnaround potential in the key forest and construction segments, as well as NorrDigi's development phase. Adjusted for NorrDigi's estimated earnings, EV/EBIT for 2026e would be 9x, so we estimate that the current share price could already be justified purely by the results of the conventional business, even if one does not believe in NorrDigi's breakthrough. Although the valuation appears attractive and we estimate the outlook to be on an upward trend, it is good to note the elevated risk level of the share, which is related to, among other things, the cyclicality of the industry, dependence on certain customers, indebtedness, and the difficult forecastability of NorrDigi's breakthrough.