Purmo Q4 next Tuesday: Efficiency measures to continue this year in a weak market

Translation: Original comment published in Finnish on 2/9/2024 at 7:19 am EET.

Purmo will report its Q4 results next Tuesday morning. Our understanding is that market conditions have remained weak, similar to Q2-Q3, while the efficiency program continues to make good progress. We expect revenue to be significantly lower than in the previous year, but earnings to improve thanks to efficiency measures. We expect the dividend to remain flat and the guidance for this year to be the same as last year, i.e., adjusted EBITDA to be at a similar level to the previous year.

We expect revenue to be down year-on-year, slightly up quarter-on-quarter

Purmo's demand, especially in radiators, weakened clearly during 2022, but revenue was relatively stable in Q3'22-Q1'23 and even dropped a notch more in Q2'23. Q4 is typically a slightly stronger quarter seasonally, which is why we expect a small increase in revenue in Q4 vs. Q3. We expect a clear decline of 11% year-on-year.

Efficiency program continues to support the result

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 comparison period is the weakest quarter in recent years, so we expect a very significant improvement in underlying earnings despite the decline in revenue. At divisional level, we expect an improvement in Climate Products & Systems, which will be more strongly supported by the efficiency program. We expect the result of the smaller Climate Solutions division to decline in line with revenue. The Q4 result is burdened by the significant one-off costs of the plant closure related to the efficiency program. Due to one-off costs, reliable consensus estimates are not available.

Market remains weak, we expect steady performance also in 2024

We expect Purmo to provide guidance for 2024 in line with last year’s, i.e., adjusted EBITDA margin to land at a similar level (+/- 5%) as the previous year. Market demand is still falling, although the decline should slow significantly from last year's high figures. The impact of the efficiency program is increasingly supporting Purmo's results and has been doing so fully since the middle of the year. However, we assume that price pressure and rising fixed costs will eat away some of the benefits of efficiency gains.

We forecast that Purmo will keep its dividend unchanged at EUR 0.36. Given Purmo's somewhat weak balance sheet, we think a lower dividend would be justified, but last year Purmo said it wanted to pay a good dividend, which is why we do not believe the dividend will fall.