Translation: Original published in Finnish on 02/16/2026 at 08:12 am EET

The earnings improvement streak of recent years continued in Q4, with earnings and cash flow exceeding our estimates. We believe the company is well-positioned to continue improving its earnings this year. In addition, the company will consider options for refinancing its current expensive bond, which will likely significantly reduce financing costs starting next year. Despite the recent increase in the share price, we still consider the valuation to be quite favorable. We lower the recommendation to Accumulate (was Buy) and raise our target price to EUR 2.0 (was EUR 1.8).

Q4 was better than expected in terms of earnings and cash flow

Revenue grew moderately by 1% in Q4, but the sales structure improved. Sales in the profitable retail and foodservice channels grew by an estimated total of around 5%, while low-margin industrial sales decreased as planned (estimated at around -12%). Q4 adjusted EBIT was 11.2 MEUR, an 8% y/y improvement, while we expected the result to be in line with the successful comparison period. The rising price of beef continued to weigh on profitability, as sales price increases only partially covered cost inflation. Cash flow was stronger than we expected, which resulted in net debt being lower than our forecast at the end of the year at 142 MEUR (2.2x EBITDA). The proposed dividend was higher than our expectations, as in addition to the basic dividend of EUR 0.08, the Board proposes the possibility of an additional distribution of EUR 0.07 later.

Good chance to improve earnings in 2026

As expected, HKFoods issued upward guidance for 2026, according to which adjusted EBIT is expected to grow from 2025 (34.1 MEUR). The past year, 2025, included various operating environment challenges, such as labor union strikes in the spring, a rapid increase in beef prices, and pork export tariffs to China for a few months in the fall. In addition, the demand environment in the early part of the year was quite weak, after which demand began to recover during the latter part of the year. We estimate that HKFoods is well-positioned to increase its earnings this year as the aforementioned challenges mostly ease (beef prices may still rise) and as the company continues its efforts to strengthen efficiency and commercial performance. We raised our 2026-27 EBIT estimates by 5%, supported by a strong Q4 report and favorable market demand development. We did not include an additional dividend in our estimates, but we consider its realization rather likely if favorable earnings development materializes.

The status of a defensive dividend company is getting closer

We see HKFoods as having the potential to be a defensive dividend company, whose long-term value creation is, however, limited due to the industry's moderate growth prospects and capital intensity. The company's balance sheet has strengthened, and its risk profile has decreased in recent years. Financing costs are still high and have significant room to decrease with the refinancing of the 90 MEUR bond (estimated around the turn of 2026-27) and the repayment of the 20 MEUR hybrid loan (estimated in 2028). However, higher dividends than the result may increase uncertainty regarding the repayment of the hybrid loan.

The valuation is favorable in light of this year's earnings outlook (adj. EV/EBIT 2026e: 9x). As financing costs decline, P/E-based multiples will fall in the coming years. With a fair P/E ratio of 10x applied to 2027, the stock offers an annual expected return of slightly over 10%. We see our current estimates as relatively low-risk, and in a positive scenario, earnings growth could continue to be stronger than our forecasts, which would have a significant leverage effect on the share price. Profitability rising to the level of competitors would imply a strong upside potential, although we see this as highly unlikely to materialize, and it would at least require larger industrial investments than at present, which would impact cash flow negatively in the short term.