Tecnotree Q2'25: Order book showing expected growth

Translation: Original published in Finnish on 8/6/2025 at 8:00 am EEST.

Tecnotree's Q2 figures fell short of our estimates, but this was largely due to the weakening US dollar. The order book grew thanks to major contract wins, and, quite as expected, the upper end of the growth guidance was increased, which we had already taken into account in our forecasts. In our opinion, the improved cash flow has substantially been priced into the stock. We raise the target price to EUR 4.5 (was EUR 4.3) in line with the decline in the required return and reiterate our Reduce recommendation.

Weakening dollar weighed on Q2 progress

Tecnotree's revenue decreased by 7% to 17.3 MEUR, clearly below our forecast of 19.8 MEUR. The revenue decline was primarily driven by the weakening US dollar, as revenue growth at constant exchange rates was narrowly positive (+0.7%), still falling short of our estimates. Revenue grew significantly in the Americas & Europe segment but declined in the MEA & APAC segment. These results represent steps forward in the company's expansion into developed markets. Tecnotree's Q2 EBIT was 5.1 MEUR, also falling short of our forecast (8.2 MEUR), which was natural, given that revenue was clearly below our expectations. The weakening dollar was also reflected in the EBIT level because the natural hedge provided by the company's dollar-based expenses is only partial. Due to significant exchange rate losses, earnings per share amounted to only EUR 0.06, falling well short of our estimate of EUR 0.26. Free cash flow was 1.1 MEUR, consistent with the company's guidance. However, after accounting for negative translation effects (-1.1 MEUR), the change in cash and cash equivalents remained positive due to the withdrawal of loans (1.3 MEUR). 

Growth guidance updated as expected

Tecnotree revised its growth guidance upward, with the company now expecting revenue to grow at a low to high single-digit rate (previously low to medium). This was anticipated given the several major deals the company announced during Q2. However, they will only have a greater impact on the company's growth in the coming years. We made minor negative adjustments to our estimates based on Q2 results, most of which were due to the actual Q2 numbers and the weakening USD, which our estimates had factored in too conservatively. We now expect revenue for the current year to grow by 3% to 73.8 MEUR, which, at fixed exchange rates, would still represent high single-digit growth in our view. We expect EBIT to end up at 27.1 MEUR (35.7% of revenue, 2024: 33.3%). Next year, we expect growth to accelerate to 10%, supported by strong order book growth following the major contracts the company signed in Q2 (105.7 MEUR vs. Q1'25: 70.3 MEUR). We expect EBIT to improve to 28.9 MEUR (note: a greater improvement is expected at the EBITDA level). While large deliveries will naturally require certain efforts and investments, a significant part of the development work can also be "replicated" from the company's previous projects, limiting the need for customization.

Improved growth and cash flow outlook reflected in price

Tecnotree's growth outlook for the coming years has improved significantly thanks to the major contracts won during Q2. The company's share price has recently jumped considerably, and the negative price reaction (-7%) to the Q2 results suggests, in our opinion, that expectations had become overly optimistic. With cash flow guidance remaining unchanged, Tecnotree's cash flow yield is clearly in the single digits, which we find unattractive given Tecnotree's risk level. Our DCF model, which indicates a significant improvement in cash flow in the coming years, suggests a value of EUR 4.5 per share (we further reduced our required return to 14.0%). However, this does not account for the dilution caused by the company's convertible bonds and the staff incentive plan in the coming years (combined effect of around 40% at the current share price). We believe that the improving cash flow outlook after the recent price rise is already significantly priced into the stock, and thus we will continue to monitor the development of the cash flow profile from the sidelines. Nevertheless, we also see opportunities for positive surprises given the improved growth outlook and reduced exposure to emerging market currencies.