KH Group: Clearer focus going forward

Translation: Original published in Finnish on 11/28/2025 at 8:00 am EET.

The price tag for divesting Indoor was substantial for KH Group, as the company had to waive its receivables and repay 2.0 MEUR of bank loans. With the transaction, KH Group completed its strategic transformation journey, and the availability of financing for its subsidiaries should improve. However, the valuation picture for the share looks challenging until we see a level correction in KH-Koneet's profitability. We reiterate our Reduce recommendation but revise our target price to EUR 0.45 (was EUR 0.50). 

Indoor Group's story deteriorated sharply in recent years

Indoor Group became part of the Group when Sievi Capital, then part of a broader investor group, acquired Indoor Group from Kesko for a debt-free purchase price of 67 MEUR in 2017. Indoor's profitability initially developed favorably, reaching an EBIT level of 14-16 MEUR in 2020-2021 amidst the nesting trend following the COVID-19 pandemic. However, the subsequent collapse of the furniture market showed that the earnings level was not sustainable. The company was no longer competitive in a weak economic environment, despite the introduction of a new ERP system, exiting Estonia, closing the weakest stores, and combining the operations of Asko and Sotka stores. In addition to operational rescue measures, KH Group made an additional investment of 2.1 MEUR in Indoor at the end of 2023 and granted the company a 1 MEUR shareholder loan at the beginning of 2025. Considering the company's historical performance and the capital allocated to it, the loss of receivables and the repayment of 2 MEUR in bank loans to exit Indoor Group for a nominal consideration is a clear disappointment. Due to changed management and a changed strategy, the current KH Group cannot be held responsible for the Indoor Group investment.

The pieces of the story are starting to fall into place

We see the potential for significant earnings growth at KH Group as the cyclical recovery of the construction sector strengthens KH-Koneet's earnings performance. In our view, NRG's earnings performance has reached its short-term potential, fueled by a strong demand cycle. We have added the earnings impact of the Indoor Group transaction to our forecasts for the rest of the year. At the same time, we have slightly lowered the Group's administrative costs in our forecasts for the coming years, as the Group's structural transformation journey is now complete with KH Group having integrated NRG into its strategy. For KH-Koneet, we have slightly lowered our forecasts for next year due to the sluggish outlook for the construction sector. With the structural transformation journey completed, the pieces of KH Group's turnaround story are slowly falling into place. However, we would still like to see more continuity in business development – the Group's current CEO has described his tenure as a project, and KH-Koneet's founder and CEO will leave his position at the beginning of next year. In addition to the development of the construction sector, the upcoming change of CEO at KH-Koneet is another key factor that increases uncertainty related to future development.

Current valuation requires too much faith in a rapid earnings improvement

With our current year estimates, KH Group's EV/EBIT multiple is at a very high 20x level, and with our estimates incorporating a significant earnings improvement next year, it is still at a high 15x level. However, due to KH Group's low relative profitability and significant financial leverage, earnings-based valuation is sensitive to even small forecast changes. Our DCF model, which indicates longer-term potential, implies a value of EUR 0.46 per share for the group, although the model relies on a sustainable improvement in profitability.