KONE Q1'26: Historic leap to the top requires balancing acts

Translation: Original published in Finnish on 5/4/2026 at 8:15 am EEST.

We reiterate our Reduce recommendation and EUR 56 target price for KONE. The company's Q1 result was in line with expectations, but the main focus was on the historic merger with TK Elevator. We believe the industrial logic of the transaction is very clear, but its final form and timing are subject to uncertainty due to competition authority reviews. In addition, if the merger goes through, a significant integration process still lies ahead. We believe the big picture balances increased long-term potential with medium-term risks. Overall, we believe the risks outweigh the opportunities, and an independent KONE's valuation is neutral. 

Q1 result was expected; independent company's estimates unchanged

KONE's operating result in Q1 was in line with expectations, but order development was slightly below forecasts. In connection with the report, the company specified its revenue guidance for the current year slightly upwards and estimates its revenue growth to be 3–6% in comparable currencies (was 2–6%). In turn, KONE expects the adjusted EBIT margin to remain within the range of 12.3% to 13.0%. Our operational estimates for independent KONE remained practically unchanged. We have not yet included the merger in our forecasts, as there is still uncertainty regarding its final form and timeline due to the competition authority processes.

TK Elevator negotiations concluded

On the morning of the results day, KONE announced that it would merge with TK Elevator (TKE) in an M&A transaction involving cash and share consideration. If the transaction is completed as targeted, KONE would clearly become the largest player in the industry, and the merger would also support its margins due to TKE's higher relative profitability. In our view, the industrial logic of the merger is clear. The focus is particularly on the growth of the maintenance base and the companies' complementary geographical strengths. At the same time, these increase opportunities in the modernization of the existing equipment base. The merger is expected to create annual synergies of up to 700 MEUR in the medium term, but there is still uncertainty regarding their realization. The biggest risks to the deal's completion are related to competition authority proceedings, and we do not believe that some divestitures can be ruled out. In our view, the probability of the entire deal falling through is quite small, but naturally there is uncertainty related to the interpretations of different competition authorities, and these may affect the viability of the deal and the targeted synergies. We also believe that KONE's target timeline (12-18 months), especially the lower end of the range, seemed optimistic given the size of the deal. In connection with such a massive merger, the risk of integration challenges would also be significant in the first few years, in our assessment, and KONE's indebtedness would also increase to a high level.

Balance between risk and potential

KONE's debt-free purchase price for TKE was 29.4 BEUR at the closing price on the day before the transaction, which corresponds to an EV/EBIT multiple of 21x-22x based on realized earnings. The valuation is clearly above the elevator industry players' median 12-month forward-looking multiples for the last five years (EV/EBIT 17x-19x). Due to the valuation level of the transaction, successful integration and the realization of synergy benefits will be critical for value creation. With our very rough estimates, we assess that the acquisition will create value by the turn of the decade (total expected return of 12-15% per annum) if it proceeds as planned. On the other hand, fewer synergies or other earnings pressure would quickly lower the expected return closer to the required return. Overall, we believe that the risks related to the final form and timing of the transaction, as well as its integration, weigh more heavily, as the earnings expectations do not leave significant room for changes in assumptions and are also very back-end loaded. Our view is also supported by KONE's neutral valuation as an independent company (DCF ~EUR 56).