Translation: Original published in Finnish on 11/6/2024 at 11:50 pm EET.

We reiterate our Accumulate recommendation and SEK 6.8 target price for NYAB. The company's Q3 numbers were below our expectations in terms of timing of revenue, but otherwise the overall picture of the report was quite expected. Positive margin development and the order book at a record level allow the company to continue its growth story from a good position. Overall, given the report, which was broadly in line with our expectations, the forecast changes for the coming years remained moderate As a result, we continue to see the expected return at an attractive level, driven in particular by the earnings growth we forecast for the coming years.

Q3 progress missed our expectations due to timing of revenue

NYAB's revenue grew by 6% in Q3 to around 94 MEUR, which was quite clearly below our forecast despite a much stronger order book this year. In our understanding, this development was at least partly due to timing factors (e.g. factors related to the holiday season). Geographically, the Finnish business revenue continued to shrink (-7%), while the reported revenue in Sweden increased by 13%. Reported EBIT was 8.9 MEUR, which missed our expectations, reflecting the revenue development. However, the margin level was in line with our expectations, which we consider a good performance given the revenue development. At the same time, the bottom lines as a whole were quite well in line with our expectations, which is why the net result was below our forecast at around the same level as the operating result.

Earnings forecasts for the coming years virtually unchanged

The company reiterated its guidance for the current year and expects its revenue (2023: MEUR 280) and EBIT (2023: 15.2 MEUR) to grow from last year. As far as we know, this is also the highest level of the guidance policy. For its part, the company commented that the outlook in Sweden has remained favorable, while in Finland it is still weaker, in line with the overall economic development. However, reflecting the strong traction in Sweden, the company's order book at the end of Q3 was, as expected, at a new record level and does not yet include the Uppsala Tramway project, which has the potential to be of significant size. Overall, given the report, which was well in line with our expectations, and the outlook, the changes to the forecasts remained small. Mainly as a result of the actual development in Q3, our forecasts for the current year have been slightly lowered and we now expect the company's revenue to amount to 330 MEUR (was 344 MEUR) and the reported EBIT to 22.9 MEUR (was 24.0 MEUR) this year. We have also slightly lowered our revenue forecasts for the coming years, but this is offset by revisions to our cost estimates, which leave our earnings forecasts virtually unchanged. However, we expect NYAB's growth to remain in double digits in the coming years and margins to reach target levels (25e-26e EBIT-%: 7.4-7.5% vs. target above 7.5%).

Expected return is attractive

Based on our estimates, adjusted P/E figures for 2024 and 2025 are 19x and 16x, while the corresponding EV/EBIT ratios are 14x and 11x. Relative to the accepted multiple range (P/E: 13x-17x, EV/EBIT: 12x-16x), we believe the valuation is relatively neutral overall for this year. Similarly, looking ahead to next year, we see upside, particularly in the EV/EBIT ratio reflecting the solid balance sheet, underpinned by the further strengthened earnings growth outlook. Our range of expected total returns over the medium term is also slightly above our required return for the stock. Further support for a positive recommendation comes from our sum-of-the-parts model, which also remained virtually unchanged at SEK 6.1-7.4 (was SEK 6.2-7.5).