We expect double-digit earnings growth from Q4
Q2 was characterised by a stable organic performance for the product units (Flow Technology and Niche Products), which comprised 78% of EBITA, while the service units (22% of EBITA) continued to struggle with price pressure on installation contracts. The recovery for installation continues to be postponed, and we expect the weakness to persist in H2. We therefore cut Solutions EBITA by 7-5% in '25e-'27e. We keep estimates for Flow Tech and Niched Products relatively unchanged (-1%) for a total revision of -3% on group EBITA in '25e-'27e. Looking ahead, we expect a growth acceleration for Flow Tech and Niched Products in H2, rendering 5-7% organic growth in Q3-Q4, as well as a return to double-digit reported earnings growth from Q4 as the effect of divestments fades. Moreover, we currently forecast 23% EBITA growth in 2026 and a 16% CAGR '25e-'27e, excluding new M&A.
Expect more M&A growth in coming quarters
The company has an interesting M&A pipeline consisting of Flow Tech companies in the UK, similar to the recently acquired Nortech, which generated SEK 44m in sales and a 36% EBITA margin in H1. Management intends to close another acquisition in H2, and we believe it can acquire at least one more in H1'26 while maintaining a healthy gearing of ~2.5x, potentially adding 10-15% to 2026 EBITA assuming the acquisitions are of equal size as Nortech.
Positioned to improve margins and ROCE
Our assessment is that Vestum's units are well-positioned to remain resilient in a potential cyclical slowdown. We also believe its highest-quality units should see accelerating organic growth, combined with bolt-on acquisitions, driving both earnings growth (16% CAGR) and margin expansion (EBITA margin from 10% to 12% and ROCE from 8% to 11%) until 2027.