Translation: Original published in Finnish on 2/18/2025 at 8:15 am EET.

We reiterate our Reduce recommendation for Koskisen and revise our target price to EUR 7.25 (was EUR 7.50). Koskisen's Q4 report was largely weaker than we expected, but we have so far made only modest negative changes to our near-term forecasts. In our view, Koskisen's stock is still largely correctly priced, given the rising earnings curve, a reasonable dividend and the expectations already built into the stock. As a result, the expected return on the stock in our book is still below our required return on a one-year horizon. Our extensive report on Koskisen, published in January, is available here.

Q4 operating performance improved from weak comparables, but slightly below forecasts

In Q4, Koskisen achieved an adjusted EBITDA of 5.7 MEUR on a revenue of 73 MEUR in a mainly weak market. Operating result improved year-on-year, driven by moderate growth in Sawn Timber Industry, but the result was not quite in line with our and consensus forecasts. In Panel Industry, profitability was impacted by several one-off items totaling more than 1 MEUR, which slightly mitigated the disappointing result. The dividend proposal was cut more than expected to EUR 0.11 per share, but we are neutral on the cut given the growth-oriented strategy and continued investments. We commented on the result yesterday here. 

Weak profitability guidance for current year

Koskisen gave guidance for the current year, according to which revenue will grow from last year (2024: 282 MEUR revenue) and the adjusted EBITDA margin will be 7-11%. The guidance was in line with revenue expectations, but the consensus adjusted EBITDA margin forecast was at the high end of the range prior to the report, and our own guidance was also above the midpoint. The company based its broad and moderately weak profitability guidance on construction demand still showing limited signs of recovery, at least for the first half, general uncertainty, and growth concentrated in the lower-margin Sawn Timber Industry. The drivers were as such known, but they were still reflected in the guidance a bit more strongly than we and especially consensus estimates had expected. 

Subsequent to the report, we lowered our volume forecasts for both businesses, particularly for H1, still reflecting the weak outlook for the construction sector and European economic growth. However, we have slightly increased our Sawn Timber Industry margin forecasts as the benefits of Järvelä's sawmill investments may have the potential to support profitability somewhat faster than we previously expected (cf. earnings beat in Q3 and Q4). Similarly, profit forecasts for Panel Industry declined due to lower volumes and higher cost forecasts (especially for logs). Our Group-level adjusted EBITDA forecasts decreased by 2% for this year and remained stable for next year. Over the next several years, we expect Koskisen's adjusted EBITDA to continue to grow as lower interest rates and a return of confidence support demand and pricing in both businesses and as the company's investments drive efficiencies. 

We still consider the stock to be correctly priced

Koskisen’s 2025 and 2026 EV/EBITDA ratios that consider the strong balance sheet are around 6x and 5x and the P/B ratio is around 1.1x (2024a). The multiples are weighted within our approved ranges for the current year, taking into account the company's estimated return on capital and risk profile. The DCF value is also around the current share price level with our current conservative parameters. Thus, Koskisen's expected return, consisting of earnings growth, multiple contraction (2024a P/E 20x) and a dividend yield of around 2%, remains below our required return over a one-year horizon. We maintain our cautious stance on the stock, although there could be leverage in the medium term if the European construction and economic recovery were to surprise positively during 2025-2026.