Translation: Original published in Finnish on 3/10/2025 at 8:27 am EET.

Componenta’s Q4 report was twofold. Profitability and especially cash flow at the end of the year exceeded our expectations, while comments on the financial year ahead were more cautious than expected. As a result, our volume-driven forecast cuts were weighted towards 2025. With a stronger balance sheet than we expected and a downward revision of our required return, we raise our target price to EUR 3.4 and upgrade our recommendation to Reduce (was Sell).

Q4 was better than feared

In Q4, Componenta’s revenue grew by 24% to 27 MEUR, slightly below our forecast. We estimate the organic growth rate to be slightly above 5%. Growth was supported by the start of a major delivery to the Finnish Defence Forces and the acquisition completed in Q4. EBITDA amounted to 4.7 MEUR, exceeding our forecast of 3.8 MEUR. Adjusted EBITDA after the positive fair value adjustment related to the asset deal was 1.8 MEUR, corresponding to a moderate EBITDA margin of 6.7%. The release of working capital resulted in a cash flow well above our expectations, which also led to a stronger than expected balance sheet. Nevertheless, as expected, the dividend proposal remained at zero.

Comments on 2025 showed some softness

Rather as expected, Componenta provided guidance for an improvement in revenue and operational EBITDA for the financial year 2025 (2024: revenue 97 MEUR, and adj. EBITDA 4.9 MEUR). We find the guidance very loose given the weak level in the financial year 2024 and the inorganic support from the asset deal completed in Q4'24. Comments on expectations for 2025 remained cautious compared to our expectations, and we estimate that the organic order book grew only moderately year-on-year. As a result, achieving stronger volume growth in Q1 seems less likely than before, leading us to lower our EBITDA guidance for the current year by 8%. The changes in estimates for the coming years were also negative, but much smaller.

We forecast Componenta's EBITDA to increase to 8.6 MEUR (2024 4.9 MEUR), supported by improved utilization rates in production due to volume growth. The volume growth in our forecast is driven by an increase in deliveries of Defence equipment industry and the recovery of the equipment business in the engineering industry from its low level. These volume-supporting customer segments accounted for approximately 60% of H2'24 revenue. We estimate that volume growth in 2025 will be held back by continued sluggish demand for Agricultural machinery. We believe that margins on orders from the Defence Forces are likely to be above average due to the urgency of the orders and the sudden increase in order volume, but to achieve the profitability we forecast for 2026 and 2027, we also believe that demand for agricultural machinery, an important market for Componenta, will need to pick up.

Expected return relies on earnings growth

Based on our projections for 2025 and 2026, the EBIT-based EV/EBIT multiples taking into account the balance sheet position are 17x and 8x, while the corresponding earnings-based P/E multiples are 40x and 11x. In absolute terms, the multiples are high for the current year and not favorable for next year either. The low level of the EBITDA-based valuation multiples (5x and 4x in 2025 and 2026, respectively) reflects, in our view, both Componenta's high level of investment and the attractiveness of the valuation should the company manage to improve its profitability beyond our forecast. The value of the DCF model is below the share price. Thus, based on the valuation methods we use, the risk/reward ratio of the share remains insufficient.