Translation: Original published in Finnish on 06/12/2026 at 07:10 am EEST

Puuilo’s Q1 report was clearly stronger than expected. In practice, all of the key metrics developed in a clearly more positive direction. Although the short-term valuation of the stock appears nominally high, we believe our estimated earnings growth and good dividend yield make the stock's risk/reward ratio attractive. We reiterate our Accumulate recommendation and raise the target price to EUR 17.5 (was EUR 14.0) as strong earnings growth extends further through the expansion in Sweden.

A strong start to the financial year

Puuilo's financial year started strongly, with EBITA increasing by 50% year on year. In terms of profitability, EBITA rose to the highest Q1 level in the company's stock market history (15.7%). Earnings growth was a result of revenue growth, improved gross margin, and the scaling of fixed costs. In our assessment, the key factor scaling the cost structure during the quarter was the accelerated revenue growth of like-for-like stores (8%). Although Puuilo's sales performance was supported by the market recovery, the company still gained market share due to the appeal of its concept.

Guidance unchanged, although signs warrant an upgrade

Puuilo reiterated its 2026 guidance. It indicates that revenue will be 480-510 MEUR (2025: 442 MEUR), with adj. EBITA 80-90 MEUR (2025: 77 MEUR). Following a strong Q1 performance and a moderate outlook for the rest of the year, we raised our near-term estimates and consider the earnings guidance to be quite conservative. For this reason, our EBITA estimate (93 MEUR) is above the guidance range. In our view, the current earnings guidance would require comparable growth to slow down and profitability to clearly weaken year-on-year during Q2-Q4'26. We do not consider this warranted, although inflation and interest rate hikes may slightly weaken market demand. Overall, we forecast Puuilo's earnings to increase by 16% annually in the medium term. The main risk to our estimates is a significant weakening of the economic situation, which we do not consider likely.

Preparations in Sweden are progressing

Puuilo plans to begin its internationalization journey in 2027 by opening its first store in neighboring Sweden. Puuilo is currently in several negotiations for new retail locations and is ramping up its processes for internationalization. These will relatively increase the company's cost structure in 2026, as it will not yet generate any revenue against these costs. At this stage, we have added a total of 4 new stores in Sweden to our estimates for 2027-30, and from then on, 2-4 new stores per year. We estimate that store openings will weaken the company's profitability due to rising marketing investments and lower sales and earnings from new stores.

In the best-case scenario, Sweden could become an even larger business than Finland. At the same time, it would prove the scalability of Puuilo's concept and the management's expertise in leading international operations. In that case, the expansion would likely continue to the next country. However, for the time being, we believe it is very challenging to realy on this scenario due to poor visibility. Our starting point is that sales in Sweden will gradually increase, but clear earnings support is only expected in the 2030s.

We believe the risk/reward ratio is sufficient

We find the stock's short-term valuation to be high, which limits the expected return on the stock. However, we believe this is justified due to the company's strong earnings growth outlook, which lowers the valuation multiples to attractive levels (2028e P/E 16x and IFRS 16 adj. EV/EBIT 12x) for a company generating a strong return on invested capital (ROIC ~30%). EV/EBIT 12x). We want to emphasize that the aforementioned multiples do not tolerate any earnings hiccups, which, if realized, would put downward pressure on the share price. The expected return is supported by a solid dividend yield of 5-6%. We therefore believe that the stock’s expected return is already very attractive, supporting a strongly positive view. The DCF model (EUR 17.7) also indicates upside in the share.