Translation: Original published in Finnish on 11/7/2025 at 7:59 am EET.

Sitowise's Q3 earnings report was subdued overall. While Finland performed well, losses in Sweden deepened. During the bottom of the construction cycle, financial expenses consume all cash flow, but earnings can rebound rather quickly as demand recovers. However, we need clearer signs of an earnings turnaround before we can take a bolder view. We reiterate our Reduce recommendation and revise our target price to EUR 2.2 (prev. EUR 2.3), as we slightly decreased our estimates. 

Sales and earnings below our low expectations

Sitowise's Q3 revenue declined by approximately 3% in both reported and organic terms to 40.4 MEUR, whereas we had expected a decline of 1%. Infra grew by 4% to 16.1 MEUR, and Digital Solutions grew by 1% to 8.3 MEUR. Sales in the Buildings segment declined by 8% to 11.3 MEUR, and the Sweden segment continued its sharp decline of 19.5% to 4.8 MEUR. The varying sales trends across segments were broadly in line with our expectations. Adjusted EBITA declined to 1.7 MEUR (Q3'24: 2.4 MEUR) and fell slightly short of our forecast. Verbal descriptions of the segments revealed that Infra delivered strong profitability (over 12%), as did the digital business. The Buildings segment continued to show a slight profit, as in the previous quarter, supported by the successful adjustment measures implemented. However, Sweden remained loss-making, and according to our calculations, the adjusted EBITA would have been around 1.5 MEUR higher without these losses. The net debt/EBITDA ratio, reflecting the current weak performance, rose to 7.2x, a very high level in absolute terms, underscoring the need for successful performance improvement measures. 

No material surprises in outlook and order book

The company’s order book decreased to 149 MEUR year-on-year (154 MEUR) but increased slightly from 148 MEUR in the previous quarter. An initial encouraging sign was that new orders received at the group level totaled 41.7 MEUR, thus recovering from the previous year's low (34.1 MEUR). Order books were at a good level in the Infra and Digital Solutions businesses, while in the Buildings and Sweden business areas, order books were at low levels.  The company expects the construction market recovery to be slow and materialize on a larger scale only in 2027.

We lowered our estimates slightly again

We forecast that Sitowise's revenue will decline by 4% in 2025 and that its adjusted EBITA margin will end up at 4.7% (2024: 5.0%). Without sales growth, we believe it will be challenging for the company to improve its profitability, although the restructuring measures will provide some support. We expect a clearer recovery to occur only in the second half of 2026 and in 2027, when growth will accelerate to 6-8%, thanks to increased construction and investment activity and reduced price competition. In the longer term, we expect the operational leverage to support margin improvement towards an EBITA margin of 9%, though we do not predict the group as a whole will return to the company's targeted EBITA margin of 12%.

Return to earnings growth critical in coming quarters

The average of the 2025–2026 EV/EBITDA multiples (10x) is elevated. High net financial expenses will also significantly erode earnings (and cash flow) in the coming years, leading to even clearly higher P/E ratios. DCF (EUR 2.3) and relative valuation paint a similar picture. A P/B of 0.8x would be very cheap, but we see a clear risk of goodwill impairment in Sweden, meaning investors cannot rely too much on this metric either. However, it is clear that the company's earnings potential is significantly higher than the current level because the company is now operating at the bottom of the market cycle. Therefore, we believe that the 2027 valuation in particular (EV/EBITDA: 7x, P/E: 14x) better reflects Sitowise’s value. Earnings growth could accelerate quite rapidly if the demand outlook begins to recover. For the time being, however, we will continue to monitor developments from the sidelines and wait for concrete signs of an acceleration in earnings growth.