KH Group: A veil of uncertainty settled over the story

Translation: Original published in Finnish on 09/22/2025 at 08:00 am EEST

KH Group’s feared profit warning was a disappointment, as it confirmed that the challenges of the company’s most important business, KH-Koneet, continue. The performance of KH-Koneet is understandably under pressure as the weak construction sector depresses demand. Despite the cyclical recovery potential, the group's absolutely high earnings-based valuation keeps us away from the stock for now, until we get more clarity on the company's challenges and the background of the surprising CEO change. We cut our target price to EUR 0.52 (was EUR 0.60) and lower our recommendation to Reduce (was Accumulate).

KH-Koneet's difficulties resulted in a feared profit warning

KH Group issued a profit waring on Friday and lowered its 2025 guidance. The new guidance expects comparable EBIT from continuing operations to be 5-6 MEUR, whereas the earlier guidance was approximately at the previous year's level of 7.2 MEUR. The downgraded guidance is due to the weaker-than-expected earnings performance of the company's largest business area, KH-Koneet. After KH Group’s weak Q2 report, the risk associated with a profit warning was obvious, and we flagged it in our latest company update. In Q2, challenges concentrated on KH-Koneet's Swedish machine rental business, but in connection with the profit warning, the group did not specify which businesses or target markets had performed worse than expected. Based on this, we interpret that KH-Koneet’sFinnish business has also developed weaker than the Group’s expectations during Q3.

KH Group also announced on Friday that it had appointed Carl Haglund as the company’s new CEO effective immediately. The change of CEO surprised us, as the role of KH Group's CEO is not operational due to the separate CEOs of the subsidiaries, and the current group structure is intended to be dismantled in the near future. In our view, the CEO change may be due to the Board's dissatisfaction with the pace of the current restructuring, as the strategic direction is still towards an industrial group built around KH-Koneet. Haglund was appointed CEO of KH Group from the company's Board of Directors and has previously served as Chairman of the Board of its subsidiary NRG, so he is already very familiar with the group.

We cut our estimates for KH-Koneet

In connection with the report, we cut our estimates for KH-Koneet. Our updated estimates expect the company's revenue in 2025 to be 198 MEUR (previous 200 MEUR) and comparable EBIT 5.7 MEUR (previously 6.6 MEUR). Our EBIT estimates for KH-Koneet's businesses for the coming years, in turn, decreased by 5-8%. 

Valuation multiples for the coming years seem unnecessarily high, with no apparent share price drivers

We have shifted the focus in KH Group's valuation from a sum-of-the-parts approach to group-level figures that consider continuing operations, as the differences in the companies' profitability profiles and capital intensity have narrowed due to the strategic transformation and the changed accounting treatment of Indoor Group. Based on our current year estimates, KH Group's EV/EBIT multiple is very high at 19x, and even with our forecasts accounting for a significant earnings improvement next year, it remains high at 14x. However, due to KH Group's relatively low profitability and significant financial leverage, an earnings-based valuation is sensitive to even small changes in forecasts. Our DCF model, which indicates longer-term potential, suggests a fair value of EUR 0.60 per share for the group. We identify the sale of NRG, in particular, as a potential driver for the stock, but based on the recently completed CEO change, we do not expect immediate divestments from the company. We, in turn, see the restructuring journey being prolonged as a risk, which, as in recent years, can burden the group's cost structure and erode the value of its parts