Translation: Original published in Finnish on 3/6/2026 at 8:45 am EET.

Orthex's Q4 profitability was at a good level, but weak revenue development made the report disappointing. Weak revenue is partly explained by timing factors, but contracted sales outside the Nordics eroded the credibility of the European growth story. The situation in the Middle East increases forecast risk for Orthex, which is sensitive to the prices of oil-based raw materials. However, a moderate valuation (P/E 12x, EV/EBIT 10x on actualized figures) keeps us constructive on the stock. We reiterate our Accumulate recommendation but revise our target price to EUR 5.3 (previously EUR 5.5).

Revenue developed weakly, but profitability was strong

Orthex's Q4 revenue declined and clearly missed both our and consensus estimates. The weak revenue development was partly explained by the timing of deliveries, which particularly impacted performance in the Nordic countries. In the Nordic countries, it is difficult for the company to achieve growth significantly better than the general market due to its high market share. However, invoiced sales also contracted in the European growth markets; one larger customer reduced its campaign orders in the fourth quarter. Despite the disappointing revenue, EBIT slightly exceeded our expectations, supported by strict cost control. The Board's proposed dividend of EUR 0.23 per share corresponds to 60% of the previous year's net profit. This represents a one-cent increase, which is in line with the company's dividend policy of aiming for a steadily growing dividend over time. At the end of the quarter, the company's balance sheet was strong (net debt/EBITDA 1.1x, with a target of below 2.5x), which creates financial flexibility for growth investments and M&A. The earnings day did not provide visibility into larger capital allocation decisions.

Growth promises must be delivered on this year

In connection with the report, we have slightly lowered our revenue forecasts for the coming years based on the subdued Q4 performance, and thus our EBIT forecasts for 2026-2027 decreased by 5-8% from previous estimates. After the disappointments of recent years, it is critical that Orthex can demonstrate healthy growth to restore confidence in its European growth strategy. True to form, Orthex did not provide guidance for the current year but described its industry outlook as "cautiously positive." We expect revenue growth to accelerate to 3.5% this year, driven by recovering consumption in the Nordic countries and growth in Europe. In our forecasts, we have updated the gross margin for Q2 and Q3 to a more conservative stance due to the recent significant increase in oil prices. Our forecasts suggest slight pressure on the gross margin, so a larger wave of cost inflation would create downward pressure on our forecasts. We note, however, that Orthex has a strong balance sheet and the company weathered the 2022 inflation wave unscathed, which strengthens our confidence in the company's resilience to shocks in the operating environment.

Low valuation supports patience despite growth pains

Orthex's earnings-based valuation (2025e: EV/EBIT 10x, P/E: 12x) is at low levels, considering the weak performance of Nordic consumers last year. Forecast risks have increased in the short term, but looking beyond these risks, we see Orthex as having favorable conditions for earnings growth as Nordic consumption recovers. The low earnings-based valuation is complemented by a dividend yield of 5-6%, which together justify a positive view on the stock despite the growth challenges of recent years. As growth recovers, we even see the conditions for a re-rating of valuation multiples, but this requires restoring market confidence in the European growth story. Based on 2026-2027 EBIT, Orthex is priced at a 24-25% discount to its peers, which provides a slight safety margin in its valuation.