Translation: Original published in Finnish on 11/06/2026 at 08:48 am EET

Orthex's Q3 report dispelled concerns about its ability to defend its margin amid severe cost inflation, as higher raw material prices were reflected in the company's figures in full for the first time. Strong growth focused on the Nordic countries, but development in Europe also clearly improved from Q2. The current inflation wave appears to be a smaller risk to the company's profitability than before, and we raised our earnings estimates, particularly for this and next year. We raise our target price to EUR 5.00 (was EUR 4.60) and our recommendation to Accumulate (was Reduce).

Record quarter clearly exceeded expectations

Orthex's Q3 revenue was the highest in the company's history and clearly exceeded our estimate. Growth was driven by the Nordic countries, where invoiced sales grew robustly against a strong comparison period. According to management, retailers' advance purchases were not behind the growth. Sales in the rest of Europe remained at the level of the comparison period, which is nevertheless a clear improvement compared to the decline in Q2. Pricing power proved stronger than expected, as the gross margin strengthened year-on-year despite soaring raw material prices We believe that the strong profitability development was driven by sales growth, a favorable sales mix, cost control, and implemented price increases. As a result, the adjusted EBIT of 3.7 MEUR improved year-on-year and drastically exceeded our estimate despite cost inflation Cash flow from operating activities weakened due to working capital and higher taxes paid, but the strong balance sheet strengthened further.

Nordic countries lead the way, Europe still has to prove itself

We raised our revenue estimates slightly and our adjusted EBIT estimates for this and next year clearly. We believe many operational factors hit the mark for Orthexin Q3, and the very strong performance of the quarter should not be extrapolated in a vacuum. Estimate changes rely on the Nordics and gross profit supported by price increases, while we slightly decreased our estimates for the Rest of Europe. We expect revenue growth to remain strong in Q4, supported by price increases. Due to Orthex's strong Nordic market share, we do not believe the Q3 growth rate is sustainable, meaning that for longer-term value creation, it remains critical that Orthex gets growth going in European export markets. In our view, profitability has the conditions for a clear positive leverage effect in any case, if growth continues or raw material prices turn to a decrease. In our estimates, the adjusted EBIT margin will rise to 11.7% by 2028, which corresponds to the company's historical level but remains clearly below its EBITA target of over 18%.

The risk/reward ratio has turned attractive

With our updated estimates, Orthex's adjusted P/E ratios for 2026-2027 are 12-11x and the EV/EBIT multiples are 10-9x, which we consider a moderate level relative to the company's low risk profile and high return on capital. Valuation is also supported by a dividend yield of over 5% and a strong balance sheet. However, a clear upside in the valuation would require strengthening confidence in the European growth story. On an EBIT basis, Orthex trades at a discount of around 15-25% compared to its peers, which we consider neutral for the time being. We feel Q3's demonstration of pricing power reduces the risk associated with profitability, which has raised the expected total return of the share to an attractive level. Excluding acquisitions, the strengthening balance sheet leaves Orthex with leeway for both organic growth investments and a growing dividend, as its leverage is clearly below the company's target level. We believe the key driver for the share in the coming years is the normalization of plastic raw material prices, which would ease the achievement of growth and strengthen the company's profitability.