Tecnotree Q3'25: Variables in earnings, but cash flow more stable

Translation: Original published in Finnish on 10/29/2025 at 8:00 am EET.

Tecnotree's Q3 figures were clearly below our expectations, but the earnings disappointment was partly explained by provisions made for trade receivables. The guidance, which indicates a very strong year-end in terms of results, was left unchanged, but we consider it possible that the guidance will be slightly missed. Cash flow has remained positive, but in our view, the stock's valuation is still tight relative to its current level. We reiterate our EUR 4.5 target price and Reduce recommendation. 

Q3 figures were clearly below our estimates

Tecnotree's Q3 revenue decreased by 2% to 18.6 MEUR, while we had expected growth of some 6%. The weakening of the dollar created a clear headwind for top-line growth, and at constant exchange rates, revenue grew by 5%. However, despite the FX effects, revenue development was softer than we expected. EBIT was even further below our estimates, at 3.6 MEUR in Q3, less than half of our 8.3 MEUR forecast. A significant portion of the shortfall was explained by a provision related to trade receivables (not yet a write-down), which, in our view, burdened EBIT by around 2.5 MEUR. In addition, investments in delivery capacity related to larger deliveries in developed countries increased the cost base in Q3, which further highlights that growth in Western markets doesn’t come for free. Free cash flow in Q3 was 1.2 MEUR, and thus the company continued the steady pace of around 1 MEUR in cash flow seen in recent quarters. The order book remained at a high level (105.5 MEUR).

Guidance indicates a strong year-end in terms of earnings

Tecnotree reiterated its multi-stage guidance, which expects revenue to grow by a low to high single-digit percentage at constant currency rates, the EBIT margin to improve by at least 200 bps, and free cash flow to be over 4 MEUR. In our view, the guidance is highly achievable in terms of growth and cash flow but challenging in terms of profitability due to the Q3 earnings disappointment. The bar for Q4 EBIT is therefore very high, considering that the EBIT margin needs to improve from an already very strong comparison period (Q4'24: 62%). Maintaining the guidance at this stage, in our view, signals the company's high expectations for the rest of the year, which is likely to be supported by the delivery of the order backlog scheduled for Q4. In our forecasts, the company falls slightly short of the guidance in terms of EBIT margin. We also made negative adjustments to our forecasts for the coming years. We expect Tecnotree's 2025 revenue to remain close to last year's level of 71.8 MEUR (growth in constant currencies) and EBIT to reach 24.0 MEUR, which would imply an EBIT margin of 33.5% (2024: 33.3%). For Tecnotree, however, the conversion of earnings into cash flow is more important than the earnings themselves. In this regard, the company has made clear progress over the past year or so, but cash flow is still quite far from the earnings level. Regarding cash flow, the focus will eventually be on next year's guidance.

We remain in the sidelines

Although Tecnotree's cash flow has improved, we believe that the stock's valuation, which has risen this year, is too tight relative to its current cash flow generation capacity, with the cash flow yield clearly in the single digits. The negative share price reactions on this year's earnings days (Q1, Q2 and Q3) also signal overly elevated expectations. Our DCF model, which indicates a significant improvement in cash flow in the coming years, indicates a share value of EUR 4.2. This does not, however, take into account the dilution caused by the company's convertible bonds, the amount of which will affect whether the company's main owner subscribes for the remaining convertible bonds by the end of the year. In our opinion, after this year's share price increase, the improving cash flow outlook has already been significantly priced into the share, and thus we will continue to monitor the development of the cash flow profile from the sidelines.