Purmo Q2'24 earnings preview: Main focus on the takeover bid

Translation: Original comment published in Finnish on 07/10/2024 at 7:10 am EEST

Purmo publishes its Q2 result on Wednesday next week. However, the takeover bid for the company is the main focus of the stock. The takeover bid is expected to end on Monday, so its results may be heard before the result. In terms of figures, we expect a slight earnings improvement from Purmo from the comparison period but a decrease from the Q1 level.

The revenue trend should stabilize

Purmo’s revenue decreased clearly in 2022 and early 2023, and quarterly revenue has been 175-190 MEUR since Q2’23, while the revenue trend continued to decline. The demand situation is still weak, but we believe that revenue development will be relatively stable during the rest of the year. For Q2, we expect a 2% decrease from the comparison period and also a small decline from the Q1 level.

Efficiency program still supports the margin

The drop in revenue and its negative leverage effect has a negative impact on earnings development. However, the company's efficiency program has made good progress and is supporting Purmo's results. The impact of the efficiency program was 34 MEUR by the end of Q1'24 and Purmo further estimates it to be 50 MEUR by the end of 2024. We forecast an adjusted EBITDA of 23.5 MEUR, or good 2 MEUR better than in the comparison period, and an increase of over 1.5 percentage points in the margin. in Q1'24, the adjusted EITDA was 26.6 MEUR. We estimate that non-recurring items from the efficiency programs will continue to depress the reported result, whish also means there is no useful consensus estimate available.

Upside in the guidance

Purmo's guidance for 2024 is adjusted EBITDA to be at the same or higher level compared to 2023 (92 MEUR). At the same level means +/- 5% and above means more than 5% improvement. This means that the estimate range is quite wide. Our forecast is an improvement of 8% to 100 MEUR, where we see a slight upside due to the Q1 earnings beat. We suspect that Purmo could update the guidance to the form “higher level”, but it is likely that the possible updated guidance will be issued later. 

News about the takeover bid before the result

There is an active takeover bid for Purmo by a consortium consisting of the private equity investor Apollo and the current main owner Rettig, offering EUR 11.15 per share of Purmo’s shares. The offer expires on July 15. Regulatory authorizations for the bid are still pending and if they are not received in the next few days, the bid period is likely to be extended. So even before the result, news about the outcome of the takeover bid or its continuation will be issued. In the absence of a competing bid, we believe that the bid is virtually certain to go through. Our latest comment on the takeover bid is found here.