HKFoods: Attractive valuation supports stronger view

Translation: Original published in Finnish on 12/30/2025 at 8:38 am EET.

HKFoods' operational profitability has taken a major step forward in recent years. Its profitability still remains significantly lower than that of its main Finnish competitors, which indicates upside potential in a positive scenario. Our current estimates are more moderate and assume that the fastest phase of earnings growth has already passed. The EV/EBIT-based valuation of the share already appears attractive based on the current year's estimated earnings, and the expected decrease in financing costs will result in low P/E ratios in the coming years as well. We raise our recommendation to Buy (previously Accumulate). Our target price remains unchanged at EUR 1.80.

Profitability took a big step in 2025

HKFoods guides for comparable EBIT to increase from 2024 (27.7 MEUR) in 2025. Our estimate for 2025 is 33.3 MEUR, assuming stable earnings development in Q4 relative to a strong comparison period. This forecast is rather moderate compared to the positive development year-to-date. On the other hand, however, the operating environment is not entirely optimal due to factors such as weak consumer confidence, pressure on beef prices, and Chinese tariffs on pork. Nevertheless, we consider it highly likely that the company will meet its guidance given the significant earnings growth in the first half of the year. 

There is further potential in improving profitability

We predict that HKFoods will moderately grow its adjusted EBIT by approximately 2 MEUR during 2026. Around summer 2025, the company completed two investments in production, one in ready meals and one in ready-to-eat meat products. These investments will enable growth in categories with a better margin profile and partially support production efficiency. We do not expect margin pressure from rising beef prices to worsen compared to 2025 because HKFoods has been able to pass cost pressures on to sales prices during the fall. However, Chinese pork tariffs may negatively impact the total pork margin. At the same time, exports of poultry to China are likely to increase.

HKFoods' EBIT margin (2025-26e: 3.3-3.5%) still lags significantly behind those of its main competitors, Atria Finland and Snellman (2024: 4.7%). In a positive scenario, strengthened investment capacity and focus on Finland could help the company narrow the gap with its competitors, although our assumptions are clearly more moderate.

Risk level eased, valuation attractive

We see HKFoods as having the potential to be a defensive dividend company, but its value creation is limited due to the industry's moderate growth prospects and capital-intensiveness. Although the company's balance sheet was significantly strained prior to the 2024-25 turnaround, we currently assess balance sheet risk as significantly lower than before. We estimate that financing costs will fall significantly in the coming years, for example, through loan refinancing and the possible repayment of the hybrid bond (forecasted for 2028).

The earnings-based valuation level is already favorable, based on results for the year ending (adj. EV/EBIT 2025e: 9x), and, as financial expenses decline, P/E-based multiples are falling rapidly as well. With a fair P/E ratio of 10x applied to 2027, the stock's expected annual return would be roughly 20%. We see our current estimates as relatively low-risk, and in a positive scenario, earnings growth could continue to be stronger than our forecasts, which would have a significant leverage effect on the share price. Profitability rising to the level of competitors would imply even potential for doubling the current share price, although we see this as highly unlikely to materialize, and it would at least require larger industrial investments than at present, which would impact cash flow negatively in the short term.