Kreate Q2'25: Earnings growth will be built later in the year

Translation: Original published in Finnish on 07/15/2025 at 10:27 pm EEST

Kreate's revenue growth exceeded our expectations in Q2, but the earnings level decreased slightly year-on-year. To meet its guidance, we believe the company needs a strong H2, where growth is underpinned by the rail projects to be added to the order book and profitability, in turn, is supported by rising volumes and easing cost pressures. We expect the valuation of the share to be moderate relative to earnings growth in the coming years, and the expected return is supported by a strong dividend yield. As our confidence in the positive drivers of the business strengthen, we raise our target price to EUR 9.2 (was EUR 8.6) and reiterate our Accumulate recommendation.

Revenue growth exceeded our expectations, while earnings fell slightly short of the comparison period

In Q2, Kreate's revenue increased by some 8% to 73.5 MEUR, exceeding our estimate of around 6%. By business area, revenue increased in both Structural engineering (+3% y/y) and Transport infrastructure construction (+12% y/y) due to projects obtained. By country, revenue development continued as strong in Sweden (+41% y/y), and revenue also turned to growth in Finland (+5% y/y),

In Q2, the company’s earnings decreased slightly year-on-year to 2.2 MEUR and were a bit below our forecast (estimate 2.4 MEUR). In our view, profitability in the quarter was weakened by the company's front-loaded growth investments and the continued tight competitive situation in the industry, which manifests itself as price competition. In the bottom lines, financial expenses were slightly higher than we expected, so EPS decreased to EUR 0.14 (Q2’24: EUR 0.16) from the comparison period, also falling short of our forecast of EUR 0.15.

Positive in the report was Kreate's strengthened order book, which grew by some 40% from the comparison period to 281 MEUR. The development of the order book supports 2025 development well, and we estimate it will strengthen in the coming quarters as the railway projects in the development phase enter the work phase.

Guidance expects growth weighted towards the end of the year

Kreate reiterated its guidance in connection with its Q2 report, in which it estimates revenue to be 290-310 MEUR for the current year (2024: 275.5 MEUR) and EBITA at 9-11 MEUR (2024: 8.8 MEUR). Our forecasts for this and coming years remain unchanged, and we expect Kreate's 2025 revenue to increase by some 9% to 300 MEUR and adjusted EBITA to increase to 9.7 MEUR (EBITA-%: 3.2%). Revenue growth is driven by projects materializing from the order backlog, and railway projects in the development phase that are not yet booked in the order backlog. Profitability, in turn, is supported by growing sales volumes and an increase in the relative share of the more profitable Swedish business.

We also see this year's strengthening order backlog, the progress of large won projects, and the gradually recovering market driving Kreate's earnings growth in the coming years (2024-2027 EPS CAGR: ~25%). On the other hand, the risks include prolonged project development phases, project postponements, and other project-related risks.

Still moderate upside in valuation

We find Kreate's valuation attractive for the coming years, considering the company's earnings growth and the opportunities created by the market turnaround (2025–2026e: EV/EBIT 10x, P/E 11x), especially looking over the current year. This will also bring Kreate's profitability closer to the normalized 4% level. Based on our 2025-2026 estimates and acceptable valuation (EV/EBIT: 10-12x, P/E: 10-12x), we believe the stock has moderate upside. In addition, the dividend yield of around 6% generated by the strong cash flow increases the expected return. The DCF calculation is also well in line with our target price (EUR 9.2), supporting our recommendation.