Translation: Original published in Finnish on 04/23/2026 at 07:10 am EEST

Norrhydro's Q1 earnings were clearly better than we expected, and strong cash flow supported the company's financial position. We made no material changes to our near-term annual estimates after the report, as the macroeconomic repercussions of the war in Iran offset the strong Q1. We reiterate our Accumulate recommendation and EUR 1.70 target price for moderately valued Norrhydro.

Performance improved significantly in Q1

Norrhydro's Q1 revenue grew by 21% to 7.2 MEUR, roughly in line with our estimate. We estimate that growth came mainly from the mining, marine, and defense segments, while the forest industry and construction either weakened or remained weak. EBITDA nearly quadrupled to 0.9 MEUR in Q1. Revenue growth supported EBITDA generation, but the beat was mainly due to increased production efficiency. The good result was also reflected in cash flow, as the company avoided working capital commitment in Q1. The free cash flow reduced Norrhydro’s net debt by approximately 0.6MEUR. An upward trajectory in earnings and cash flow development is also the best remedy for the company's financial position, which, despite positive developments over the past year or so, still has room for improvement.

Guidance remained unchanged as expected, although the geopolitical situation may cause problems in the near future

In its Q1 report, Norrhydro reiterated its 2026 revenue guidance of 30-32 MEUR and EBITDA guidance of 3-4 MEUR. The reiterated guidance was in line with our expectations. However, the outlook comments were cautious, as Norrhydro stated that the tightening geopolitical situation has been reflected in demand in recent weeks and has caused inflationary pressures in the supply chain. The company expects this to be reflected in Q2 orders and deliveries. Margins may also face slight pressure in the coming quarters, as passing on inflation to customer prices occurs with a delay, even in the best-case scenario. However, Norrhydro believes that the overall market will continue to recover this year, but due to the geopolitical situation, the pace may be slower than previously estimated.  Based on comments, new products and customers are expected to provide additional support for growth during late 2026 and 2027.

We slightly cut the company's Q2 and Q3 revenue and margin estimates due to macroeconomic factors, but the Q1 beat supported our current year estimates. Our current year estimates are in the lower half of the revenue guidance range and in the upper half of the earnings guidance range. We estimate that 2026 revenue will primarily be generated from conventional cylinders, with more significant revenue from EMA and MCC cylinders (NorrDigi) expected next year at the earliest. We made no significant estimate changes for the coming years, but we expect the upward trajectory to continue with a more moderate slope in a slightly improving economic environment. 

A more attractive valuation picture offsets a slight increase in outlook risks

The ongoing earnings turnaround's progress has lowered valuation multiples and helped the company reduce the balance sheet risk caused by its relatively high indebtedness. We believe Norrhydro's 2026 earnings-based valuation of EV/EBIT 10x is reasonably attractive, considering the turnaround potential in the key forest and construction segments, as well as NorrDigi's development phase. We estimate that the current share price could already be justified by the earnings of the conventional business, even if one does not believe in NorrDigi's breakthrough. Although the valuation appears attractive and we consider the outlook to be on an upward trajectory despite increasing risks, the cyclicality of the industry, dependence on certain customers, indebtedness, and the difficult predictability of NorrDigi's breakthrough keep the share's risk profile (i.e., estimate risks) quite high in our view.