Solwers H1 on Thursday: Our operational result expectation is at the level of the comparison period

Translation: Original comment published in Finnish on 8/29/2023 at 6:34 am EEST

Solwers will release its H1 report next Thursday. We expect the company’s revenue to have increased slightly thanks to acquisitions, but we expect organic revenue growth to turn into the red in H1. Driven by this and wage inflation, we expect the company’s profitability to have fallen slightly from the good comparison level, which means that our earnings expectation is slightly below the comparison period.

We expect a slight increase in revenue driven by inorganic growth

 We expect Solwers' H1 revenue to increase by 2% from the comparison period and reach EUR 33.3 million. In our estimates, revenue growth is driven especially by the Transport Consultancy Group Nordic acquisition made early in the year and the Establish Schening acquisition of the comparison period. By contrast, we expect organic growth to have fallen by around 4%, as we suspect that the deterioration in the macro situation seen already at the end of last year has slowed down the progress of private sector projects. In terms of demand, however, we estimate that a positive element has been the good investment levels in northern Sweden, but on the other hand, the effect of this is diluted by the weakened SEK.

We expect profitability to fall from the strong level of the comparison period

 Our H1 EBITA estimate is almost at the level of the comparison period at EUR 3.7 million, which corresponds to a good margin of 11.0%. We expect that increased wages have depressed profitability, as we estimate that the competitive situation has been tighter in a weaker market, which has prevented passing of wage inflation to prices. At the same time, we predict that the use of subcontracting was lower in H1 reflecting the demand situation, which we suspect has supported profitability somewhat. We forecast increased depreciation and amortization that reflect inorganic growth to depress the reported result. In addition, we expect net financing costs to have risen markedly with rising interest rates. Thus, we estimate the reported EPS to decrease from the comparison period to EUR 0.15.

We focus on comments on demand and order book development, as well as capital allocation

Solwers has not provided any numerical guidance for 2023, but as before we expect the company to comment on its demand outlook and the development of its subsidiaries’ order book. With the clear weakening of the economic growth outlook, especially comments on the development of call for tenders activity is of particular interest. We are also interested in possible comments on M&A transactions, as in connection with its financial statements the company stated that it aims to continue growing through acquisitions. The company's financial position also gives considerable leeway for this. In our view, efficient use of the balance sheet also requires capital allocation, as a lot of cash (18.5 MEUR at the end of 2022) together with the amount of interest-bearing debt (31.8 MEUR at the end of 2022) is not efficient.