Orthex: Oil headwinds freeze earnings growth

Translation: Original published in Finnish on 04/14/2026 at 08:30 am EEST

The prolonged conflict in Iran has increased the risk of cost inflation, which is particularly detrimental to Orthex. However, Orthex's share price has risen since our last update, despite the increase in interest rates and raw material prices, which weakens the risk/reward ratio. This offers risk-averse investors a moderate opportunity to lighten their exposure to inflation risks. We are confident in the company's longer-term outlook, but over a 12-month horizon, risks are weighted to the downside as the prolonged conflict weakens the outlook. We lower our recommendation to Reduce and revise our target price to EUR 5.0 (was EUR 5.3).

The inflationary effects of the war in Iran threaten to be prolonged

In our Q4 earnings report published in early March, we lowered our profitability estimates due to the increase in oil prices following the war in Iran. Since then, oil prices have risen, and the risk of longer-term inflationary pressure has increased due to destroyed energy infrastructure in the Middle East. External factors typically affect the contract prices of plastic raw materials important to Orthex with a delay, but Plasticker's spot list prices for plastic raw materials at the beginning of April show a price increase of over 20% compared to February levels, which is, however, more moderate than the development of oil prices. At this point, the question is how large and long-lasting the current inflation wave will be. In 2022, Orthexdemonstrated its resilience to cost inflation, and its strengthened balance sheet has further improved this. With the sharp rise in oil prices, the conditions for achieving earnings growth have deteriorated. In this light, the consensus EPS estimate of EUR 0.44 for the current year, which requires a significant improvement in earnings, seems very aggressive.

Estimates for the coming years cut due to cost inflation

Due to increased cost inflation pressure, we have lowered our EBIT estimates for Orthex for 2026–2027 by 5-11%. In our estimates, the company's EBIT will decline this year and return to growth next year as cost inflation eases. Our estimates account for the recent development in oil prices, but at this stage, we do not yet model potential multiplicative effects, such as a weakening economic outlook or raw material availability challenges. Due to these uncertainties and the high consensus expectations, we believe the risks are weighted to the downside in the short term. Despite the risks we have outlined, Orthex is, in our view, better positioned than its industry average to face the current inflation risk. This is due to three factors: a strong balance sheet provides leeway for M&A, a high proportion of recycled and bio-based raw materials (18% in 2025) protects against oil price fluctuations, and a quality image facilitates passing on costs to prices.

The valuation is not challenging, but share price drivers are scarce as tail risks increase

Orthex's earnings-based valuation (2026e P/E 14x, EV/EBIT 11x) is not particularly challenging, and even without earnings growth, the dividend yield enables a short-term return of around 5%. However, with the ongoing conflict in the Middle East, it is difficult to identify other short-term share price drivers for the stock, and the risk of prolonged cost inflation and raw material availability challenges grows daily. Our DCF model indicates upside for the share and a value of EUR 6.1 per share. However, realizing this potential requires a recovery in revenue and strengthening relative profitability, which we believe will take time in the current cost-inflationary operating environment.