Incap Q3'25: Valuation encourages higher contributions

Translation: Original published in Finnish on 10/27/2025 at 8:17 am EET.

Overall, Incap's Q3 report was disappointing, especially due to a steeper earnings decline in Q3 than we expected. However, we raise our recommendation for Incap to Buy (was Accumulate) and cut the company's target price to EUR 11.00 in line with the revised estimates (was EUR 12.0). We believe the upside of the EV-based valuation, which has fallen to a low level, the approaching earnings growth turnaround we expect despite uncertainties, and the possibility of corporate acquisitions make the expected return on the stock very attractive in both the short and longer term.

Operational performance in Q3 disappointing

Incap's revenue in Q3 decreased by 16% to 51 MEUR and adjusted EBIT by 29% to 5.8 MEUR. Growth and earnings fell short of our forecasts, as exchange rate developments, delays in certain customer projects, and the negative impact of tariffs affected the figures more than anticipated. Despite the decline in revenue and likely subdued volume, Incap achieved a good adjusted EBIT margin of 11% once again. In the income statement's lower lines, the company recorded one-off income for Q3. While there were no major surprises in financial expenses, the tax rate was high. As a result, despite the one-time income, reported EPS fell short of our estimate and that of the comparison period, reaching EUR 0.14 per share in Q3. In terms of cash flow, the report was reasonable.

We lowered the expected scale of improvement

In its Q3 report, Incap reiterated its guidance for the current year, according to which the company's revenue for this year is 210-230 MEUR and EBIT 23-29 MEUR. The company commented that Q3 was the low point of the year and expressed confidence in improved quarterly performance beginning in Q4. According to our estimates, this is due, at least in part, to projects carried over from Q3, and, in any case, the company should have a fairly good idea of the year's remaining volumes at this stage. In light of the macroeconomic situation, the period of weakest demand may
 already be over, as the European economy, the company's main market, has shown cautious signs of recovery. 

We lowered our current year revenue and adjusted EBIT estimates for Incap by 2% and 5% respectively, due to currency and volume-related reasons (including, in particular, the shortfall in Q3). This year, we expect Incap's revenue to decrease by 7% to 215 MEUR and adjusted EBIT by 18% to 24.7 MEUR, so we expect Incap to achieve its guidance. We lowered our revenue forecasts for the coming years by around 6% and our adjusted EBIT forecasts by around 6-9% because we added a safety margin to our volume estimates due to weaker-than-expected and ongoing trade policy uncertainty (e.g., the US and India have not yet signed a trade agreement). In the coming years, we forecast the company to reach an average of over 10% earnings growth, driven by a gradually improving market and slight market share gains (including new customers and increased shares from existing deliveries). Incap should have spare capacity for growth, especially in India, according to our estimates. The main risks to our projections relate to the continued large proportion represented by the largest customer, as well as to trade and geopolitical uncertainty and fluctuations in investment-driven demand.

Valuation picture is very attractive

Incap’s adjusted P/E ratios for 2025 and 2026 based on our estimates are 19x and 12x, and the corresponding EV/EBIT ratios are 8x and 7x. The multiples we have already calculated based on this year's modest result are below the range we have approved for the company on an EV basis. In our view, the expected return of the share, consisting of upside in multiples and earnings growth, is clearly higher than the required return in the short and medium term. However, we emphasize that realizing the expected return requires the company to grow its earnings, and the stock does not offer a higher expected return than the required return without a turnaround to organic earnings growth or the realization of value-creating acquisitions. Relative discount and the DCF value around our target price also support a strongly positive view on the share.