This report is a summary translation of the report “Yrityskauppa näyttää positiiviselta” published on 8/5/2024 at 7:03 pm EEST.

We see Harvia's recent acquisition as a positive step for the company's value. We have included ThermaSol in our forecasts, which in terms of EPS increased by 3-4% for 2025-26. As a result, we raise our target price to EUR 32 (was EUR 30), but we reiterate our Sell recommendation. 

Harvia has acquired steam company ThermaSol, deal looks good

Harvia announced a couple of weeks ago that it would buy the steam shower and steam room company ThermaSol in the US, and the deal was completed at the end of July. In recent years, ThermaSol has achieved a revenue of just under 15 MEUR and an EBITDA margin of just under 20%, which is below Harvia's level. The transaction price was
30 MUSD. The debt-free transaction price is 30.4 MUSD, which values ThermaSol at 2023 multiples of EV/S 2.1x and EV/EBITDA 12.2x. The multiples paid for the acquisition target are not low, but clearly below Harvia’s own multiples and the valuation picture turns more positive when we consider the strategic compatibility and Harvia’s historical track record of the ability to raise the profitability of acquisition targets and/or grow companies after the transaction. We consider the deal to be strategically sound, as Harvia, which is strong in traditional heaters, has had a much weaker position in steam and infrared saunas, and thus strengthening these through an acquisition is in our opinion sensible and even expected. The US was already Harvia's largest market before the acquisition, and the deal will put Harvia in a better position to continue its growth there. Harvia already said at the Capital Markets Day in the spring that it is difficult to enter the steam segment organically, so we believe that an acquisition in this area is a logical step. We have discussed the transaction in this comment. We have included ThermaSol in our forecasts in this report, raising e.g. the 2025 revenue forecast by 9% and the EPS forecast by 4%.

Q2 result to be announced on Thursday at around 9 am EEST

Harvia's revenue growth is expected to accelerate from around 3% in the last couple of quarters to over 10% in Q2. This is supported by a weak comparison period, postponed deliveries partly due to the port strike in the spring and continued strong growth outside Europe in our forecasts. On the other hand, overall consumer demand in Europe developed rather sluggishly in the spring. Both we and the consensus expect revenue to reach nearly 40 MEUR, an increase of just under 11%, almost entirely organic. In terms of EBIT, we also expect an improvement over the comparison period, with the margin forecast to remain around the good 22% level of the comparison period. In addition to the figures, the results announcement is likely to include details on the recent acquisition.

Valuation is high, expected return is poor, even though the company generates good value and cash flow

We find Harvia's valuation level (e.g. EV/EBIT 2024 19x, P/E 25x) high, although we consider the company's return on capital and its ability to allocate and generate cash flow excellent. In 2024-26, we expect Harvia to achieve annual organic EBIT growth of around 10%, accelerated by the recent acquisition. In addition, the investor receives a dividend yield of 2%. The company’s current strong cash flow provides a cash-flow rate of some 5%. We believe that Harvia’s capital allocation will continue to be value-creating, and thus channeling of cash into acquisitions and/or larger dividends will support the investor’s expected return. We also see Harvia as a potential acquisition target, but with the current valuation, we find it quite expensive for the buyer. In the medium term, we believe that (organic) earnings growth will be limited to a good 5% growth in revenue. Overall, however, the expected return at this valuation level remains weak, especially on a 12-month horizon.