KH Group Q2'25: Quarterly results dampened by Swedish machine rental

Translation: Original published in Finnish on 8/18/2025 at 8:30 am EEST.

KH Group's Q2 report was disappointing due to the weakened profitability of KH-Koneet and the extremely poor performance of the Indoor Group, which is up for sale. Based on the report, we trimmed our view of KH-Koneet's value, though we increased NRG's fair value in our sum-of-the-parts calculation. We lower our target price to EUR 0.60 (was EUR 0.65) but reiterate our Accumulate recommendation. 

Swedish machine rental behind disappointing results

KH-Koneet, the core business of the KH Group, achieved good growth in relation to market developments in Q2, but profitability weakened from the comparison period and fell short of our expectations. KH-Koneet grew and improved its profitability in the mature Finnish market, which we consider to be a strong performance, given the downturn in the machine dealership and the company's strong market position. In Sweden, on the other hand, business development was concerning, with a decline in revenue and loss-making profitability, pushing KH-Koneet's comparable EBIT down to 0.8 MEUR from 2.0 MEUR in the comparison period. The weakness in Sweden was mainly due to lower profitability in the rental business, an increased cost structure, and the impact of the weak Swedish krona on profitability. As expected, NRG's revenue declined due to a weaker order book, which weighed on profitability. However, the financial situation of the Finnish wellbeing services counties became clearer at the start of the year, and at the end of the growth period, the company's order book was once again at a record high, according to KH Group. Indoor Group, which is actively seeking buyers, posted very weak figures once again, raising doubts about the company's viability. KH Group has written down its holding in the company, and Indoor's value cannot be relied upon in the investment story.

Achieving guidance requires improving the performance level of KH-Koneet

As expected, in connection with the report, KH Group reiterated its guidance for continuing operations, indicating comparable EBIT at about the previous year's level. After a weak start to the year,  achieving the profitability guidance depends on KH-Koneet's recovering earnings level, and prolonged profitability challenges would result in a profit warning. Notwithstanding the challenges in Sweden, we believe that signs of recovery in the Finnish market are cause for optimism, despite short-term challenges. From an overall perspective, KH-Koneet continues to gain market share during this weak cycle, and we see significant growth potential for the company as the Nordic machine dealership and rental business recovers. The turnaround in the earnings of subsidiary NRG appears to have reached a sustainable level, and the company's order book is once again at record levels. In contrast, the situation at Indoor Group appears bleak, and a turnaround would presumably require the support of another owner.

The parts have value, but patience has been tested while waiting for it to be released

Our sum-of-the-parts calculation indicates a value of EUR 0.71 per share for KH Group. However, the path to releasing value has been slower than we expected, as KH Group's strategic transformation has not advanced from a group structure standpoint since the sale of HTJ in July 2024. The key of the story, KH-Koneet, has shown a strong ability to grow despite the weakness in the machinery trade. For the company's value, evidence of a return to growth in return on capital plays a key role in strengthening the international growth story. Positive development can be expected from NRG, driven by a robust order backlog, and KH Group's negotiating position has strengthened significantly in recent years in terms of selling NRG. We support the group's decision not to capitalize Indoor in the future because we believe it eliminates a significant risk factor related to capital allocation from the investment narrative.