Harvia Q1'25 preview: US growth rate estimates slightly lowered

Translation: Original published in Finnish on 4/24/2025 at 8:26 am EEST.

The US is Harvia's largest market and growth driver. The US tariffs and the slowdown in consumer confidence and possibly demand will affect the company in many ways. We have lowered our forecasts by 3-5% for the next few years and our target price to EUR 40 (was EUR 46). We reiterate our Reduce recommendation. 

US tariffs have multiple effects

The North America segment is forecast to account for almost 40% of Harvia's revenue this year, with the majority coming from the US. Developments in the US therefore play a crucial role in Harvia's performance and especially in its growth. Harvia's main product in the US is complete saunas, which it manufactures locally. Similarly, the steam products acquired last year are manufactured locally. Wood raw material is also imported from Canada, and any tariffs on these will affect raw material prices. The company does not have a sauna stove manufacturing facility in the US but imports them either from China or Finland. With the high tariffs for China, we believe that the stoves will in practice come from Finland. We believe that Harvia will be able to offset the impact of moderate increases in tariffs and raw material prices by raising sales prices. However, price increases may have a slightly negative impact on demand for products.

However, in comparison to its competitors, Harvia has more local manufacturing, so Harvia might gain a comparative advantage over its competitors. We believe that the current tariffs will hit the infrared sauna segment in particular, where Harvia is not very active, as many players have imported their products from China. Rising prices and/or reduced availability of infrared saunas due to tariffs could support demand for Harvia's products. On the other hand, a weakening of overall consumer confidence, and possibly of purchasing power in the US, would probably also have a negative impact on demand for sauna products. However, we do not currently believe that the trend of structural growth in the US will end, but that growth will possibly slow down somewhat.

We lowered our forecasts for the US

In this report, we have made changes only for the North America segment, which is effectively the US. If the effects of the trade war weaken the broader economy, forecasts for other segments will also come under downward pressure. We have slightly lowered our volume forecasts for the current year as consumer confidence and general economic sentiment have weakened. However, with the impact of higher customs duties and raw material costs, we expect Harvia to raise prices somewhat, which will support revenue development. The main driver of the forecast changes is the weakening of the US dollar, which is roughly 10% weaker against the euro compared to our previous update. At Group level, we lowered our forecasts by 3-5% for the coming years.

High valuation is deserved, but also exposes to risks

We believe that Harvia's valuation level (e.g. EV/EBIT 2025 18x, P/E 24x) is highish, although we consider the company's return on capital employed and its ability to allocate and generate cash flow excellent and that multiples will, therefore, moderate in the coming years. However, we note that there is currently more downside risk in the forecasts. We believe that Harvia’s capital allocation will continue to be value-creating, and thus channeling cash either to acquisitions and/or larger dividends would support the investor's expected return. We also see Harvia as a potential acquisition target, but with the current valuation, we find it quite expensive for the buyer. On the other hand, should growth in the US falter, we believe the stock's high valuation exposes it to a share price decline, which has already been partly reflected in the stock following the tariff news. With the tariffs and the rise in uncertainty related to economic development, we raised our required return, which together with the decline in forecasts lowered our DCF value and target price.