Solwers Q1'26: Still waiting for the turnaround to turn up

Translation: Original published in Finnish on 5/22/2026 at 7:00 am EEST.

Solwers' Q1 was weaker than our expectations, and the income lines, which are important for deleveraging, remained slightly below even the weak comparison period. We lowered the slope of our forecast earnings growth. The valuation does not look attractive enough considering the elevated financial risks. We lower our target price to EUR 2.0 (was EUR 2.1) and reiterate our Reduce recommendation.

Subdued performance, adjusted earnings down year-on-year

Solwers' Q1 revenue grew by 2.9% year-on-year to 21.0 MEUR. The development was in line with our forecast of 21.2 MEUR. According to the company, January was burdened by the holiday season, but activity and order book picked up slightly as the quarter progressed. We expected the company's adjusted EBITA to remain at the comparison period's level of 0.4 MEUR, but it decreased to 0.27 MEUR. According to the company, the decline in earnings was due to continued fierce price competition and the weak construction sector. The company has continued its adjustment measures in architectural design and industrial services. The return on capital employed (ROCE), also reported as a new official metric, fell to 2.9% in Q1 (Q1/2025: 4.9%), which underlines the Group's challenges in generating sufficient returns on the capital allocated to acquisitions in recent years at the bottom of the cycle.

Worrying news about the company's financial position

Solwers has a waiver in effect until the end of June 2026 regarding its financial covenants. However, the management flagged the risk that the original net debt/EBITDA covenant (below 3.5x) might not be met (Q4'25: ratio 4.0x). In our view, the tight balance sheet raises the stock's risk profile in the short term, although with our current earnings forecasts, we consider the most likely option to be a waiver renewal (which will increase financing costs somewhat), but an expensive hybrid loan or a share issue is not ruled out if earnings do not start to grow. The company reiterated its guidance, according to which EBITA profitability is expected to strengthen in 2026 and performance is expected to improve as the year progresses. The company again reported that the order book has strengthened slightly.

We shifted our earnings growth expectations slightly forward

We lowered our adjusted EBITA forecasts by approximately 10% and also slightly raised our financing cost forecasts, as the probable renewal of the waiver will bring additional costs. We still expect earnings growth in 2026, but we expect earnings growth to materialize more moderately than before and to be weighted towards H2'26. We expect the company's utilization rates to improve first as a result of its own actions, after which margins will also begin to recover as market price levels become linked to increased investment. At the moment, the key question is still what the company's normal profitability level will be once the market finally improves. In our opinion, it is clear that it is significantly better than the 2025 level (EBIT 1%), which is burdened by a weak cycle and one-off costs, but a return to the 2019-2023 averages (EBIT ~8%) currently seems unlikely. Our long-term profitability forecasts remain at EBIT 6.7%.

Valuation multiples for the next 12 months are very high

Solwers' risk profile is dependent on its normal profitability level, as the company's debt servicing capacity and thus the debt-related risk level depend on the earnings level. Cutting a few corners, if the profitability level were to remain close to the levels seen during 2024-Q1’26, the share would be expensive, the M&A strategy would have failed, and the debt burden would be a challenge. Conversely, if profitability recovers to the level of our forecasts, the stock's valuation is already quite attractive when looking further out, the debt level is under control, and new acquisitions can again be considered. The valuation with the lowered 2026-2027 forecasts (EV/EBIT 22x and 12x and P/E 95x and 11x) does not look attractive, and financing risks also reduce the risk/reward ratio in the short term. We will continue to monitor for signs of accelerating earnings growth, which is critical to the investment story.