Solwers Q3'25: Stopping the earnings slide was important

Translation: Original published in Finnish on 11/21/2025 at 7:45 pm EET.

Solwers' Q3 was better than we expected, as earnings development stabilized, marking the first step towards the company regaining critical earnings growth. The big picture of our forecasts is unchanged, but our confidence in the turnaround has strengthened slightly. We reiterate our target price of EUR 2.5 but raise our recommendation to Accumulate (was Reduce).

Q3 review exceeded our expectations

Solwers' Q3 revenue grew by 5.5% to 17.6 MEUR (our estimate 16.8 MEUR). The tail-end of the Spectra acquisition in the comparison period provided some support to sales, but organic growth finally turned positive after the slightly negative figures earlier in the year. EBITA (1.2 MEUR) also remained close to the comparison period and exceeded our forecast of 1.0 MEUR. Based on comments, market pricing pressures continued, eroding margins, but the company had also incorporated 0.3 MEUR in cost savings into the quarter's figures. Solwers' average number of personnel decreased to 687 during the quarter (Q3'24: 717 people). The company also commented that the order book had increased year-on-year, and it appears that going forward, the workload in relation to personnel is in a better balance than in the comparison period. Of course, the total order book does not directly reflect the situation of different subsidiaries, as some may have a long order book and some businesses may have only a small one. The company also reported a significant 2 MEUR order won by Finnmap Infra after the review period.

The turnaround in the earnings trend supports our forecasts

Stabilized earnings development was the first step towards improving earnings, which is needed to leave cash flow for owners even after paying financing costs. In our view, the company's elevated net debt/EBITDA (LTM) ratio (Q2'25: ~5x) has not yet shown positive development towards normal covenant levels (below 3.5x), as this requires earnings growth. The company's outlook was unchanged and it estimated that it would benefit from a general market recovery, which is expected to strengthen towards the end of the year.

We expect organic revenue to continue growing during Q4’25. The company's earnings should also recover as utilization rates improve and savings are realized. From 2026 onwards, we also expect market price levels to recover as investment activity picks up, which will also start to support the company's margins. At present, the key question remains what the company's normal profitability level will be when the market finally improves. In our opinion, it is clear that it is significantly better than the 2024-25 level, which is burdened by a weak cycle and one-off costs, but a return to the 2019-2023 averages (EBIT 7.9%) currently seems unlikely. Our profitability forecasts are clearly below 2019-23 levels, but we still expect a significant improvement in profitability in the coming years.

The realization of earnings growth drives the share

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 2024-2025, 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, the debt level is under control, and new acquisitions can again be considered. If profitability were to return even close to the average levels of 2019-2023, the stock would be strikingly cheap (P/E 5-6x).

We believe the stock's risk-reward ratio has improved from before, as Q3 strengthened our confidence in the recovery of the earnings level, and the share price has also decreased since our last update. However, the slope of earnings growth is still unclear, which keeps financial risks elevated.