Translation: Original published in Finnish on 12/12/2025 at 8:00 am EET.

We reiterate our EUR 5.2 target price for Fondia but revise our recommendation to Accumulate (was Buy). The company is undergoing major transitions, and its earnings turnaround  is only just beginning. However, unlike in the past, strong measures have been taken, and success in strategic projects would lead to a significant improvement in results. This also supports confidence in a change in the outcome. Despite its challenges, Fondia is the market leader in continuous legal services in Finland, in view of which its valuation is extremely low.

Number one in continuous legal services

Fondia is Finland's 9th largest business law firm, offering continuous legal department services at a fixed monthly fee as its spearhead product. We estimate the company to be the market leader in Finland in continuous services, which is its focus area. Approximately 46% of the company's revenue comes from productized continuous services, with the remainder from separate projects for either continuous service clients (27%) or other clients (27%). The company has invested in new operating models, digital services, and the utilization of AI, and in our view, it is a pioneer in a conservative industry. The strategy is supported by the recently renewed MyFondia platform, a digital working environment for lawyers and clients. In the Finnish business law market, valued at around 1.2 BEUR, the clear target group consists of underserved SMEs, but the company also serves a significant number of international large corporations. In our view, the company has a competitive advantage in its core area of continuous services, but its pricing power is still limited due to competitors and personnel. The company inevitably falls short of the industry's top profitability because margins in continuous services are significantly lower than in large projects. On the other hand, development is more stable and, if successful, still very profitable. In addition to Finland, Fondia has significant operations in Sweden (~18% of revenue) and minor operations in the Baltics (~3%).

Earnings development must be turned around

Fondia's financial performance has largely been weak for a long time, as revenue has been under pressure due to Finland's economic downturn and the company's operational efficiency has been poor. A year ago, the company initiated a comprehensive transformation process, driven by the new CEO, which included significant change negotiations and a strategy update. The company's strategic projects correctly focus on problem areas (such as improving billing rates), but the benefits of cost-saving measures have so far been offset by declining revenue. After the cost base has been streamlined, the focus will shift to growth, where increasing the time spent on client work is also key. An increase in billable utilization would have a strong leverage on profitability, so success in this area would be a game-changer for the company. Although there is still limited concrete evidence, we expect profitability to increase significantly as revenue turns to slight growth next year. We estimate Fondia's 2026 revenue to be 24.6 MEUR, with an EBITA of some 1.8 MEUR, representing a 7.4% margin (2020-2024 average: 6.9% adjusted for NRIs). At that point, Fondia would also generate abundant cash flow.

Return to profitable growth would lift the stock to a new level

Fondia's valuation (2026e EV/EBITA below 9x) is attractive. The enterprise value (EV), considering the strong balance sheet, is only 16 MEUR, which could realistically double in two years if the turnaround materializes, without valuation multiples becoming particularly high (2027e EV/EBITA 7x). On the other hand, a turnaround has been anticipated before, only to result in disappointment, leading investors to forget the company. However, we believe that the company's focus and strategy are now correct, and the preconditions for a turnaround are better than before, which is why we strongly lean towards it materializing. However, it is possible that fundamental problems have become ingrained in the company's culture, preventing success. In the short term, the company also faces a clear risk of a profit warning.