Translation: Original published in Finnish on 5/28/2025 at 8:40 am EEST. 

We are initiating coverage of infrastructure construction company GRK Infra with an Accumulate recommendation and a target price of EUR 13.00. In our opinion, GRK, which was listed in April, is one of the best in its industry. Although growing earnings in the short term from the high level achieved at the end of Q1 is not easy, we think the stock is unfairly underpriced, especially with EV multiples that take into account the very strong balance sheet. Thus, we see the expected return stemming from the upside in the share valuation and the dividend as attractive.

GRK is focused on demanding infrastructure construction

GRK is a company specializing in demanding infrastructure construction, with services divided between Civil engineering and road construction (~75% of revenue), the Rail business (~23%) and Environmental Services (~2%). GRK's largest operating country is Finland with a good 50% share of revenue in 2024, but the company has also expanded to Sweden (close to 40%) and Estonia (around 10%) in recent years. About two-thirds of GRK's revenue comes from public sector clients such as the state and municipalities, while about one-third comes from private sector investments.

Due to the relatively large share of the public sector and its mostly long-term planned investments, the demand for infrastructure construction is fairly stable and, in some cases, even counter-cyclical. The infrastructure construction market in GRK's operating countries is very large in relation to the company's size and is expected to grow at an annual rate of about 3%. Market growth is driven by the green transition, urbanization, the need to improve defense and critical infrastructure, and the reduction of the repair debt. Infrastructure construction is a very fragmented sector in all of GRK's operating countries, where GRK competes with local players, companies operating more broadly in the construction value chain, and international infrastructure companies. In our opinion, it is difficult to build clear and long-lasting competitive advantages in the industry, but GRK's very strong financial track record in terms of both growth and profitability shows that the company's competitiveness is strong. We estimate that this is partly due to the skilled and well-motivated personnel, as the company seems to have been remarkably successful in managing project schedules, quality and costs.

We expect the company to achieve its targets

GRK's financial targets include revenue of over 750 MEUR in 2028, an adjusted EBIT margin of over 6% and a net debt to EBITDA ratio of less than 1.5x. With rolling figures at the end of Q1, the company has achieved its revenue and margin targets, and the balance sheet has a healthy net cash position following the IPO. GRK will, of course, have to compensate for the major Stegra project, which has supported the figures in recent years and will probably end next year, but we still think the company's targets look moderate. We expect GRK to achieve its 2028 targets, which would imply moderate growth and earnings growth from the 2024 level. However, this year may be the peak in short-term earnings, as we expect the company to exceed its guidance for both revenue and earnings, driven by a very strong Q1 and a still lengthy order book. Our forecast does not include acquisitions, which in our opinion the company could make with the firepower of its strong balance sheet, especially in Sweden and/or in new infrastructure construction segments to accelerate growth.

The expected return is good on all metrics

GRK’s adjusted P/E ratios for 2025 and 2026 are around 11x and 13x, and the corresponding EV/EBIT ratios are around 7x and 8x. In our opinion, the multiples are low in relation to the quality of the business and below the level we accept for the company, especially on an EV basis. The EV multiples are also low in relative terms. Thus, the expected return consisting of upside in multiples and an approximately 5% dividend clearly exceeds our required return. We expect the undervaluation to dissolve, driven by the news flow (incl. guidance raise and new orders) over the next year. The DCF model also supports a positive view on the stock.