LapWall Q3 on Tuesday: We're expecting tolerable numbers considering the circumstances

Translation: Original comment published in Finnish on 10/26/2023 at 7:16 am EEST

LapWall publishes its Q3 business review on Tuesday. We expect that LapWall has performed well in Q3 despite a very mixed market situation, but the company will fall clearly short of the strong comparison figures. We estimate that the company’s new orders will be slightly higher than revenue, as comments on the sales for the quarter have been reasonable despite the very weak demand situation in housing construction. We expect LapWall to reiterate its 2023 guidance We do not change our view of the company ahead of the Q3 report, although the risks, especially for next year, are elevated due to the prolonged higher interest rate level and the weak economic growth outlook in Finland.

Revenue will decline clearly despite inorganic support from the acquisition

We estimate that LapWall’s revenue will decrease in the seasonally reasonable Q3 by 16% to EUR 11.3 million. The reason for the decline is wall panel volumes that have declined dramatically with housing construction, which the deliveries from the KW-Component acquisition (impact in Q3 good 1 MEUR) and healthy demand in the roof element segment driven by industrial and public construction are far from compensating. In addition to volumes, we estimate that the company’s sales prices have been declining slightly with the decrease in certain raw material prices (incl. sawn timber) and the tightening competitive situation.

Profitability has fallen from the excellent level of the comparison period

We forecast LapWall's adjusted EBIT for Q3 to be around EUR 1.1 million. This is about half of the excellent level of the comparison period. We beleive that the result drop is driven by a decline in revenue and slightly depressed margins. However, our estimated earnings level would still correspond to a reasonable adjusted EBIT margin of 9.7% considering the difficult operating environment in the construction sector (cf. company’s target level: 12-15%), which would probably also be significantly higher than in the competitive field. Below the adjusted EBIT, the KW-Component acquisition raises LapWall's goodwill amortization slightly, but we do not expect LapWall to record non-recurring expenses from the acquisition in Q3.

We expect the order backlog to increase slightly from the level at the end of H1

During Q3, LapWall has announced that it has received orders for 4 MEUR during ‘early fall’ at the Pyhäntä unit that focuses on wall panels. In addition, the company reported in the H2 report that demand on the roof element market (Pälkäne and Veteli units) remained healthy. In addition, we suspect that LapWall’s orders have already been somewhat supported by the difficulties of some competitors and LapWall’s strong competitiveness. Therefore, we expect LapWall to have collected new orders for EUR 12.5 million in Q3, which would raise the company’s order backlog slightly above the Q2 level and clearly above the comparison period (decline in housing construction began to be reflected in LapWall’s orders in Q3’22).

Lapwall will reiterate its guidance

In connection with its H1 report. LapWall issued a guidance for 2023, according to which the company's revenue for the current year will be EUR 40-45 million and adjusted EBIT EUR 4.0-4.5 million. We expect the company to reiterate this guidance and consider it realistically achievable, considering the order backlog at the end of H1 and Q3 news flow. However, uncertainty for next year is high due to persistent high interest rates and the weak outlook for the Finnish economy, but the report is unlikely to shed any light on next year.