Incap Q2'25: Profit warning behind, favorable valuation on the horizon

Translation: Original published in Finnish on 7/28/2025 at 7:51 am EEST.

We raise our recommendation for Incap to Accumulate (was Reduce) and reiterate the company's target price of EUR 12.00. We lowered the company's near-term estimates, reflecting the negative profit warning issued by the company earlier this week, though the profit warning risk, which had pressured the risk/reward ratio after the Q1 report, is now off the table. Earnings are expected to decline significantly in H2, primarily due to FX effects, but we believe the upside potential from a low EV-based valuation, the M&A option, and good medium-term earnings growth potential still create an attractive return potential for the share. 

Growth and earnings growth cooled down in Q2

Incap's revenue in Q2 decreased by 4% to 55 MEUR and adjusted EBIT by 9% to 6.0 MEUR. Growth and earnings performance fell short of our estimates, but due to the negative profit warning this was no longer a significant surprise. In our view, the declines are mainly explained by the strengthening of EUR/USD and EUR/INR exchange rates, which negatively impact the company's revenue and profit mainly through translation. We estimate volumes to have remained roughly stable, but there has been no scope for their growth in the unclear trade policy situation. In the lower lines of the income statement, one-off costs slightly exceeded our estimates, and currency movements also negatively affected financial expenses. In addition, the tax rate rose to a very high level, as the company exceptionally repatriated earnings from India to the parent company in Q2 by distributing a dividend, which resulted in 2.5 MEUR in withholding taxes. As a result, Incap's EPS in Q2 was sharply below the comparison period and forecasts, at EUR 0.03. The payment of this tax item also weighed on cash flow, although Incap's operating cash flow clearly recovered in Q2 from a very weak Q1 as working capital normalized.

Currencies to dent earnings this year

Incap reiterated the guidance it provided in the profit warning earlier this week, according to which the company's revenue for this year is 210-230 MEUR and EBIT 23-29 MEUR. The company commented on the demand outlook for the rest of the year cautiously positively, similarly to its peers, even though trade policy uncertainties have postponed some customer deliveries and uncertainties also remain high with trade negotiations between the EU and the US ongoing. Currencies, however, are becoming a significant headwind for H2.

We lowered our current year revenue and adjusted EBIT estimates for Incap by 7% and 14% respectively, due to currency and volume-related reasons. Our revenue forecasts for the coming years decreased by 4-5% and EBIT forecasts by 6-7%. This year, we expect Incap's revenue to decrease by 4% to 221 MEUR and EBIT by 13% to 25.3 MEUR. In the coming years, we forecast the company to achieve an average of over 10% earnings growth, driven by a gradually improving market and slight market share gains (including new customers and increased shares from existing deliveries). In our view, the company should have free capacity for growth, especially in India. The main risks to our forecasts relate to the continued significant revenue share of the largest customer, global investment demand and competition. Our estimates do not include acquisitions, which are still high on the company's agenda. Following two successful acquisitions, acquisitions are in our view an option for value creation. M&A activity in the sector seems to have picked up, and we consider it possible that the company will soon find a suitable target in its own style, primarily avoiding public auction processes.

Valuation picture is attractive

Incap’s adjusted P/E ratios for 2025 and 2026 based on our estimates are 20x and 13x, and the corresponding EV/EBIT ratios are 10x and 8x. For this year, we consider the multiples to be neutral, whereas next year's figures provide a more attractive picture of the valuation, especially on an EV basis. Relative discount and the DCF value around our target price also support a positive view on the share.