Translation: Original published in Finnish on 11/4/2024 at 7:27 am EET.

Sitowise will announce its Q3 results on Thursday November 7. We expect revenue to continue to decline in the third quarter, but profitability to improve as a result of the increased number of working days, efficiency measures and internal challenges in the comparative period. However, in our estimation, the market has not shown significant signs of improvement during the quarter and the risk to earnings levels is evident in our view. The outlook for the 2024 result is already weak to begin with, so our focus for the Sitowise report will be on signs of market recovery and success in reversing the challenges in the Swedish business. 

Revenue on a downward trend

We expect Sitowise's revenue to continue to decline by around 7% in Q3 to 42.4 MEUR (Q3'23: 45.6 MEUR). The decrease in revenue is due to the weaker development in Sweden and the Buildings business. In Sweden, we expect the weaker phase to continue until the end of the year, while the Finnish Buildings market has not shown any significant signs of recovery either. We estimate that the insufficient workload in Sweden has continued to have a negative impact on the utilization rate. We expect the Infra business to have outperformed the rest of the group, although we expect growth to have come to a halt there as well. In the Digital Solutions business, we believe that fierce competition and a weaker private market are currently dampening demand.

Potential for improvement in the result

We expect Sitowise's adjusted EBITA to increase somewhat year-on-year to 4.3 MEUR and the margin to increase to 10.2% (Q3'23: 7.6%). An extra working day in the quarter supports profitability, although the impact may be more modest than normal due to the timing of holidays in the quarters. We believe that profitability will continue to be impacted by the weakness of the Swedish operations in H2 and the insufficient workload relative to resources. Weakness in the Finnish housing market also continues to weigh on profitability. However, operations have been adjusted to the current situation and we believe this will support profitability. Reported figures will be negatively impacted by restructuring costs, which we expect to be higher than in H1.

Setting our sights on the outlook and the economic situation

In its guidance, Sitowise expects revenue to decline in 2024 (2023: 211 MEUR) and the adjusted EBITA margin (%) to be lower than in 2023 (2023: 8.1%). We do not think the guidance rules out a significant margin decline, which may be imminent if profitability does not show signs of picking up in Q3.

Based on the market outlook, we do not expect the situation in the housing market to have improved significantly in Q3 in either Finland or Sweden. In our view, the infrastructure market has remained more stable and for Sitowise this is supported by the order received for the Vantaa tramway. In addition to the result, our attention is drawn to Sitowise's cash flow, which has followed the weaker results in the current year and in terms of financial position, the debt leverage (net debt / adjusted EBITDA) ratio was already at 4.3x in Q2 (target below 2.5x). Besides the comments on the result and the outlook, we also look for the company's comments on the development of the financial situation.