Translation: Original published in Finnish on 11/26/2024 at 7:32 am EET.

Solwers will publish its Q3 business review this Friday. We expect the company's revenue to have increased year-on-year due to acquisitions, although the figures for the comparison period are not known. In Q3, which is characterized by the holiday season, we expect the revenue level to be lower than in other quarters, but we nevertheless expect a good profitability level.

Revenue growth driven by acquisitions

We expect Solwers' Q3 revenue to increase from the comparison period and reach 18.2 MEUR. The company switched to quarterly reporting this year, but the figures for the comparison period are not available. We have therefore estimated the relative share of revenue in Q3 based on the seasonality of other similar service companies. We forecast H2 revenue to show stable organic growth, while inorganically we expect it to grow by 23%. This, together with the comparison period figure in the Q3 report, gives our projections a better benchmark than our absolute forecast, as it is difficult to accurately assess seasonality in the absence of comparison data. The inorganic revenue growth in our estimates comes from the seven acquisitions made in the last 12 months.

Profitability drivers point in different directions in Q3 dominated by holiday season

Our estimate for Q3 EBITA, adjusted for depreciation of intangible assets, is 1.9 MEUR. This corresponds to a good EBITA margin of 10.4%. The profitability drivers in Q3 are mixed, as billable hours are expected to be lower than in other quarters due to the holiday season. Meanwhile, certain fixed costs are not flexible, which puts pressure on profitability. However, it should be noted that the holiday season is a time when salary provisions are released, which supports the result, and as is typical for a service company, personnel costs are the largest item in the company's cost structure.

No numerical guidance provided; our focus is on market commentary

Solwers has not provided a numerical guidance for the current year, which is in line with the company's guidance practice in recent years. The company has also stated that it expects a further improvement in the business environment toward the end of the year due to a general market pick-up. In our view, the realized interest rate cuts have not yet had a material impact on market activity, and we expect the sluggish market conditions to continue to translate into price-driven competition, especially for public sector projects. Against this backdrop, we do not expect a significant strengthening of the project portfolio and believe that these expectations have largely been postponed until next year. We will be looking for confirmation of this view in the Q3 report and will also be interested in any further comments on the recently announced expansion into Poland.