Solwers Q1'25: Market finally showing signs of life

Translation: Original published in Finnish on 5/5/2025 at 1:15 pm EEST.

We reiterate our EUR 2.65 target price for Solwers and raise our recommendation to Accumulate (was Reduce) as a result of the decreased share price. Although the Q1 result was a clear disappointment in terms of profitability, the market has finally started to pick up. This increases our confidence in the earnings improvement we forecast, and if the earnings improvement materializes, the stock looks attractive. 

A mixed Q1 business review

Solwers' Q1 business review published on Wednesday was mixed. Revenue was slightly better than expected (20.4 vs. 20.0 MEUR) and the clear organic revenue decline seen at the end of the year was overcome. However, profitability was poor, as it has been at the end of the year, and the operating result was clearly below our forecasts (EBITA 0.9 vs. 1.7 MEUR). The company reported that Q1 profitability was still suffering from non-recurring costs related to the transition to the main list. In addition, the weak market situation makes resourcing difficult and keeps price competition tight. The company implemented cost savings during the first part of the year, and their effects should start to be visible in the coming months. In addition, the company has already launched significant savings measures in group overheads, as previously announced.

Solwers has not provided numerical guidance but reiterated its previous outlook. In its outlook, Solwers expects to benefit from the general market upturn, which is expected to strengthen towards the end of the year. In addition, the company reported that there are early signs of recovery in the market, as the number of requests for quotations has started to increase and previously postponed projects have started to be launched. This view is in line with the general economic consensus, which expects the economy to gradually recover in both Finland and Sweden during the second half of the year. Given the company's value chain position, it should benefit relatively quickly from the market recovery.

Normal profitability level a key question mark

We have made only minor refinements to our operating forecasts following the report. We would like to point out that, although the percentage changes appear large, particularly for 2025, the euro amounts are small. We predict that organic revenue will gradually increase in 2025 due to the overall market situation. As utilization rates improve, savings are realized, and one-time costs are eliminated, the company's results should also recover significantly. Currently, the key question for Solvers is what the company's normal level of profitability will be once the market improves. In our opinion, it is obvious that it will be better than the 2024 level, which was clearly burdened by a weak cycle and non-recurring expenses, but a return to the 2019-2023 averages seems unlikely at the moment due to the changed group structure and the growth of administration. Our profitability forecasts are below average compared to the previous five years.

Profit improvement drives the stock price

Solwers' risk profile also depends on its normal level of profitability, as the company's ability to service its debt and, at the same time, the level of risk associated with the debt depend on its earnings level. In simplified terms, if profitability remained close to the levels seen in 2024 and the first quarter of 2025, the stock would be overpriced, the acquisition strategy would be unsuccessful, and the debt burden would be problematic. Similarly, if profitability recovers to the level predicted by our forecasts, the stock valuation will be quite favorable, and the level of debt will be under control. The stock would be extremely cheap (P/E 5-6x) if profitability were to return to even close to the average levels of 2019–2023.

Overall, the risk/reward ratio of the share in our view leans cautiously towards the positive, as the share is attractively valued if earnings growth materializes (2026e: P/E 10x), and we believe that the prerequisites for earnings growth in the coming years are quite good along with the recovering economic environment.