Sitowise Q3'24 flash comment: Very poor result and not much to cheer about in the outlook

Translation: Original published in Finnish on 11/7/2024 at 9:17 am EET.

Sitowise announced a weaker-than-expected third-quarter report on Thursday. The company's revenue decreased as expected because of the weaker market situation. Due to weak revenue, low utilization rates and the challenges in Sweden, the result was also significantly below our estimates. The order book continued to decline during the quarter and no significant improvement in the market is expected for the remainder of the year. In order for Sitowise to significantly improve its profitability from the current level, it will need market momentum, but a significant improvement is unlikely before the second half of 2025. 

Revenue in decline

Sitowise's revenue decreased by 8% to 41.8 MEUR in Q3 (Q3'23: 45.6 MEUR), continuing the downward trend that started last year. Revenue missed our estimate by 2%. Acquisitions and one more working day in the quarter had a positive impact on revenue, while organic revenue was down by 10.5% in the quarter. The decline in revenue was due to insufficient order books in the Buildings business in Sweden and Finland and the weak market conditions. The order book was down 8% year-on-year during the quarter at around 154 MEUR, reflecting the still weaker outlook, especially for the housing market in Finland and Sweden.

Profitability is not taking off

Sitowise's adjusted EBITA decreased to 2.4 MEUR in Q3 and the margin deteriorated to 5.8% (Q3’23: 7.6%). We expected the adjusted EBIT to increase from the very weak comparison period, driven by efficiency measures and an increase in working hours (+11h y/y), but the result missed our estimates by 45% (estimate: 4.3 MEUR). The weak profitability and the earnings miss were driven by the challenges in Sweden and the weak market situation in both the Finnish and Swedish housing markets. In addition, wage pressures and fierce competition are eroding margins. The net result eventually became negative due to one-off items and the goodwill impairment loss from a subsidiary. We expect comments on the goodwill impairment in the earnings call, as a significant part of Sitowise's balance sheet value is based on goodwill.

Guidance unchanged, outlook still challenging

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%). Based on Q1-Q3, profitability will be significantly lower. In terms of market outlook, Q4 can still be expected to be challenging for the Buildings businesses, but in Sweden profitability is expected to improve with annual savings of around 3.5 MEUR from the Building for Future program. The market outlook in Sweden is also expected to improve faster than in Finland. Digital Solutions and Infra are in a more stable market position. Overall, Sitowise considers the timing of the construction market recovery to remain highly uncertain and expects the recovery to become more pronounced only in the second half of 2025.