Orthex Q3'25: Return to growth

Translation: Original published in Finnish on 11/14/2025 at 08:50 am EET

Source: Inderes & Bloomberg (consensus)

Orthex's Q3 report was stronger than we expected, driven by development in the Nordic countries. However, our estimates remain largely unchanged. The stock's valuation picture is attractive, but in the longer term, achieving a high total return requires accelerated growth in export markets. We reiterate our EUR 5.5 target price and Accumulate recommendation.

The Nordic countries were the bright spot of the report

Orthex’s Q3 revenue grew by 2.5% to 23.4 MEUR, slightly exceeding our estimate. However, exchange rate-adjusted growth was below one percent. In addition, Q3 benefited from higher campaign sales than the comparison period due to the timing of seasonal campaigns. The sales structure differed from expectations, as the Nordics grew stronger than expected, and the development of export markets was somewhat subdued The Q3 EBIT of 3.3 MEUR was clearly stronger than expected and the 2.8 MEUR in the comparison period, which was due to tight cost control. Due to campaign sales, the gross margin was at the comparison period’s level, but lower sales and marketing expenses, as well as administrative expenses than in the comparison period strengthened relative profitability. At the end of the quarter, the company's balance sheet position was strong (net debt/EBITDA 1x, target below 2.5x), which creates financial flexibility for growth investments and M&A. The earnings day did not provide visibility into larger capital allocation decisions.

Revenue on an upward trend again

Our estimates are largely unchanged after Q3, although we slightly cut growth estimates for export markets and raised them for the Nordic countries. We expect Orthex's revenue to remain on a growth trajectory, but due to a sluggish start to the year, our revenue estimate for this year is slightly below the previous year. Next year, we expect the company to achieve 5% revenue growth in line with its financial targets, supported by a recovering demand environment. The estimate cannot withstand new restrictions on deliveries due to distributors' credit risks, similar tothose seen earlier in the year. For Orthex's investment case, export markets play an increasing role due to the limited growth potential in the Nordic countries. The company still has plenty of room for growth in the export markets, but with this year's challenges, the company must prove its ability to accelerate its growth rate to strengthen the European growth story.

Despite this year's performance, we still consider Orthex's growth target of over 5% to be relevant, but the EBITA margin target of over 18% seems distant to us with the current growth investments. Thus, Orthex's normalized EBIT margin is 11-12% in our forecasts. The company has an ongoing strategy process, in connection with which we find it possible that the financial targets will be updated to be more growth-driven. We feel a stronger pursuit of growth than at present would be justified for the investment story, as we see Orthex's growth as value-creating. By increasing factory utilization and limiting sales and marketing investments, the company can improve its profitability closer to the targeted level, but in our view, this would be short-sighted in terms of value creation.

The valuation level is moderate, but future growth determines the expected return

Orthex's earnings-based valuation (2025e: EV/EBIT 11x, P/E: 13x) seems neutral and turns attractive with our forecasts for next year. Driven by a 5-6% dividend yield in the coming years and earnings growth, we see potential for the share to generate an annual return of 12-16% when revenue returns to a growth path. With our 2025-2026 EBIT forecasts, Orthex is priced at a 22-23% discount to its peers, which we believe provides a margin of safety against the forecast risk related to near-term growth. Our DCF model indicates a share value of EUR 6.7, which warrants patience with the growth story.