Translation: Original published in Finnish on 08/01/2025 at 09:00 am EEST

We reiterate our Accumulate recommendation and EUR 1.2 target price for Nurminen Logistics. The Q2 result fell short of our expectations, reflecting the development of the Baltic operations. However, the development of the Railway business met our expectations well, even though the quarter's progress was hampered by maintenance shutdowns at North Rail's customers' factories. The company made no changes to its guidance in connection with the report, and overall, the outlook was as expected, with the uncertain market situation limiting attractive organic growth opportunities. In light of the overall picture, we made only minor negative revisions to our near-term estimates. As a result, we believe the valuation picture of the stock is moderate and find the risk-adjusted expected return attractive.

Source: Inderes

Q2 fell slightly short of our expectations

Nurmisen's revenue grew by 24% to 27.9 MEUR in Q2, mainly through inorganic growth from the Essinge Rail acquisition. However, revenue slightly missed our forecast due to a decline in revenue from the Baltic operations. In our view, this was due to the volatile nature of raw material transports, which can vary considerably from quarter to quarter. The development of the Railway business was in line with our forecasts, although North Rail's progress was hampered by maintenance shutdowns at its customers' factories, which we believe all occurred in Q2. Based on minority interests, North Rail's development was slightly below our expectations, while other businesses grew more rapidly. Nurminen's adjusted EBITA was 4.3 MEUR, which fell short of our expectations, reflecting the revenue development and our estimated revenue distribution. By contrast, the net cost burden on the lower lines was slightly lower than we expected, reflecting which, the EPS of EUR 0.02 was in line with our forecast.

We cut our estimates for the coming years a bit

The company reiterated its guidance for this year in connection with the report and expects revenue (2024: 105 MEUR) and comparable EBITA (2024: 19.1 MEUR) to grow year-on-year. We still view the guidance as relatively broad, especially regarding revenue, considering the corporate arrangements made in late 2024 (especially Essinge Rail). On the other hand, based on the company's comments, Essinge's volume development has been depressed by the delayed arrival of summer, as it focuses especially on consumer products (e.g. beverages), which has also slowed down business development. In addition, increased uncertainty limits organic growth opportunities in the short term.

Based on the report, we made limited estimate revisions for this year. The biggest change was the drop in the Baltic revenue estimates, reflecting actual development. Similarly, we made slight positive revisions for the Railway business, mainly to the smaller Finnish operations. Reflecting the actual development and our revisions, we now expect the company's revenue to increase to 122 MEUR this year (was 126 MEUR) and adjusted EBIT to be 21.8 MEUR (was 23.1 MEUR). We expect the earnings level to remain fairly stable in the coming years.

There is still upside in the valuation

With our updated estimates, the P/E ratios for Nurminen, adjusted for PPA amortizations, are approximately 10x and 8x for 2025 and 2026. Relative to our accepted multiple range (P/E 9x-12x), we believe there is upside in the earnings-based valuation, especially when looking at next year. In the short term, however, we do not think it is justified to value the stock at the very top of the range, considering the distribution of earnings (large shares of North Rail and the Baltic business), despite the addition of Essinge Rail. We estimate that the expected return will be supported in the coming years by strong performance and dividend distribution enabled by cash flow (2025e-2027e dividend yield ~5%). In addition, we believe that the company's current strong cash flow profile enables inorganic moves already in the short term.