Solwers H2 on Wednesday: Inorganic growth in a subdued market

Translation: Original comment published in Finnish on 2/26/2024 at 6:45 am EET

Solwers publishes its H2 report on Wednesday at around 9:00 am EET. We expect the company’s revenue to have increased slightly from the comparison period as a result of acquisitions, while our profitability forecast and therefore our earnings forecast are below the comparison period. We expect the company to increase its dividend slightly from the previous year. Solwers has not historically provided numerical guidance, and we do not expect the company to do so this year either. Thus, we pay attention to comments on the demand environment, the development of the order book of Group companies, as well as the growth and earnings outlook.

Inorganic growth and market-based organic slowdown

We expect Solwers' H2 revenue to increase by close on 2% from the comparison period and reach some 31 MEUR. In our forecasts, revenue growth is driven by acquisitions, of which Transport Consultancy Group Nordic completed early in the year and North 68 Consulting and Arkman Architecture completed in the fall have increased H2’s revenue load. Organic growth, however, is expected to decline by 4%, as we estimate that sluggish economic development has slowed down the general level of customer activity, and the resulting change in the competitive situation has not provided conditions for price increases.

We expect profitability to fall but to be at a good level

Our H2 EBITA estimate is slightly below the comparison period at 3.1 MEUR, which corresponds to a relatively good margin of 10.0%. Relative to the comparison period, there are several profitability drivers. In our forecasts, profitability is somewhat reduced by the profitability levels of acquisitions and by the fact that in the current market environment prices have not to our understading fully compensated for wage inflation. In addition, we expect small costs from acquisitions. At the same time, however, we expect subcontracting to decrease, which supports profitability. In the lower lines, we expect higher interest rates to have significantly increased net financial expenses from the comparison period, so we expect EPS to have decreased more than the operating result and reached EUR 0.09 per share. We expect the company to raise the dividend paid for 2023 to EUR 0.09

We focus on comments on the guidance, market and development of the order book

Solwers has historically not provided any numerical guidance, but last year it provided verbal guidance on revenue and earnings development. Therefore, we expect a verbal guidance also for this year. On the other hand, the information value of a guidance similar to last year of revenue growth and earings remaining at "a good level" is not high as the company has carried out several acquisitions in recent history which secures the revenue growth outlook even if the market situation were more subdued in the short term. In addition to possible guidance, we focus on comments concerning the demand and competitive situation in the market and the development of subsidiaries' order book on the report day.