Translation: Original published in Finnish on 4/23/2025 at 8:20 am EEST.

Kreate's revenue decreased in Q1 in line with our expectations, with earnings down year-on-year. In our view, the first half of the year will be weak, and growth will be weighted towards the end of the year, reflecting the typical seasonality of the industry. In Kreate's case, projects in the development phase are seen to increase the order book during the early part of the year, which provides good potential for growth as the market recovers. We believe that the valuation of the share is moderate relative to earnings growth in the coming years, and the expected return is supported by a strong dividend yield. After updating our fair value calculation and with our confidence in the positive drivers of the business strengthened, we raise the target price to EUR 8.6 (was EUR 8.0) and reiterate our Accumulate recommendation.

Revenue declined as expected, with earnings slightly down year-on-year

In Q1, Kreate's revenue decreased by 3.7% to around 52.4 MEUR, which was virtually in line with our forecasts (forecast: 52.7 MEUR). The decline in revenue slowed down in the first quarter as comparison periods eased for Structural engineering (Q1 revenue: -14% y/y), Sweden grew strongly (+15% y/y), and railway projects brought growth in Transport infrastructure (+27% y/y). On the positive side, Kreate’s order book grew in Q1 by about 23% to 226 MEUR. The development of the order book supports this year's developments well, and we also estimate it will strengthen in the coming quarters as the railway projects in the development phase enter the work phase.

In Q1, the company’s earnings decreased from the comparison period to 0.1 MEUR and were slightly below our forecast (forecast 0.3 MEUR). The EBITA margin was thus 0.1%, while we had expected a margin of 0.6%. In our view, profitability was hurt during the quarter by the low volume level and the still tight competitive situation, which in our view is reflected in price competition. At the bottom of the P&L, financing costs were slightly lower than we had expected, so earnings per share increased to EUR 0.01 (Q1'24: EUR -0.06), also exceeding our forecast of EUR -0.04.

Reiterated guidance indicates growth for the end of the year

In its guidance, Kreate expects its revenue to grow in 2025 to 290-310 MEUR (2024: 275.5 MEUR). EBITA is expected to grow to 9-11 MEUR (2024: 8.8 MEUR). Our current and near-term forecasts remain unchanged, with only minor fine-tuning, and we expect Kreate's revenue to increase by 7% to 295 MEUR in 2025 and adjusted EBITA to increase to 9.9 MEUR (EBITA-%: 3.4%).

Revenue growth will be driven by railway projects coming into the order book in the spring, which we expect to significantly boost growth in the second half of the year. Profitability will be supported by growing revenue volumes and easing cost pressures. We also see the strengthening order book and the recovering market this year leading the company to earnings growth in the coming years (2024-2027 EPS CAGR: 16%). We see the prolongation of project development phases, the postponement of projects, project-related risks, or the continuation of a weak market outlook further into the fall as risks.

Moderate upside in valuation

In our view, Kreate's valuation looks attractive over the next few years (2025-2026e: EV/EBIT 9x, P/E 10x), especially in the current year, given the company's earnings growth and the opportunities created by the market turnaround. This will also bring Kreate's profitability closer to the normalized 4% level. Relying on our 2025-2026 forecasts and acceptable valuation (EV/EBIT: 10-12x, P/E: 10-12x), we believe the stock has moderate upside. In addition, the dividend yield of around 7% generated by the strong cash flow increases the expected return. The DCF calculation is also well in line with our target price (EUR 8.6), supporting our recommendation.