Solwers H1'24 preview: We expect inorganic growth and relatively stable operational performance

Translation: Original comment published in Finnish on 8/27/2024 at 7:05 am EEST.

Solwers will publish its H1 report on Friday this week at around 9.00 am EEST. We expect the company's revenue to have increased clearly year-on-year, driven by the completed acquisitions. However, we expect profitability to have declined slightly in the period, resulting in an operating result forecast that is only slightly above the comparison period. We believe that the industry is now in the midst of its quietest period as a result of the slowdown in demand, and we will be watching the report for, among other things, comments on the recovery in demand following the slowdown.

We expect significant revenue growth driven by acquisitions

We forecast Solwers' H1 revenue to have grown by 15% from the comparison period to 38.1 MEUR. The revenue growth in our forecasts is driven by acquisitions, with six acquisitions adding inorganic growth to the period. The most significant in terms of size are the Relitor and Wisegate acquisitions made around the turn of the year. In contrast, we expect organic growth to have declined by approximately 4%. We expect the weakest period of slowing demand since last year to have occurred in Q2, as we estimate that organic growth was stable in the first quarter.

We expect profitability to fall from the level of the comparison period

Our H1 EBITA forecast is slightly above the comparison period at 3.5 MEUR. This corresponds to a lower margin of 9.5% compared to the comparison period. Therefore, we expect that the decline in organic revenue has weakened the billing rates in some group companies, and we also expect that the increase in the size of the group has led to higher costs, together with general cost inflation. Our forecast for the reported result is weighed down by higher depreciation due to acquisitions, and our forecast for net financial expenses is slightly above the comparison period. To reflect this overall picture, we forecast H1 earnings per share of EUR 0.12, slightly down year-on-year.

Anticipation of bottoming out

Solwers has not provided a numerical guidance for the current year, which is in line with the guidance practice of recent years. The company has also stated that it expects a further improvement in the business environment toward the end of the year due to a general market pick-up. In addition, the company commented in connection with the Q1 report that it has a good order book for public sector and infrastructure projects. We expect the trough in demand resulting from the recent sluggish economic development to bottom out this year, probably in H1. Considering this overall picture, we estimate that the order book should be reasonable for the rest of the year, although we do not expect revenue to return to organic growth until next year. We will be looking for confirmation of these estimates in management comments as part of the H1 reporting.