Solwers

Solwers had already released a profit warning for Q4 2024 and the full year on 1 February. Q4 EBIT was EUR 0.3m, burdened by changes in conditional purchasing prices, writedowns on doubtful receivables and preparation costs for the possible listing change. A lower billing rate and tough price competition burdened earnings in Q4. Solwers' order backlog, however, remains at a good level and the company sees signs of improving activity, although we do not expect a rebound until after H1. Following the Q4 report, we trim our top-line estimates by 2% for 2025-26 and cut our adjusted EBIT estimates by 13-15%. Consequently, our DCF- and peer-based fair value range declines to EUR 3.8-4.5 (4.3-5.1), which includes EUR 0.6 per share for the present value of unannounced acquisitions. We believe Solwers will continue its M&A-driven strategy; the company is about to expand into the Polish market, and we foresee further margin improvement potential once the market recovers in Solwers' operating countries. Marketing material commissioned by Solwers.

Solwers’ Q4 sales of EUR 21.7m were fairly in line with our estimate of EUR 22.1m. EBIT of EUR 0.3m fell significantly below our estimate of EUR 1.2m, although we note that our estimates have not been updated after the profit warning of 1 February, which called for “close to zero” EBIT and revenue of EUR 21-22m. The result was burdened by non-recurring items such as conditional purchase prices, write-downs and costs related to potential main list transition. Price competition and low billable hours also contributed to the weaker result. DPS proposal of EUR 0.024 was also below our EUR 0.06 estimate (EUR 0.064 for 2023). No numerical guidance was given, but the company anticipates market recovery to strengthen towards the year end 2025. The company aims to grow via acquisitions in at least three countries during the year, implying M&A in Poland this year. After the profit warning, the report gave limited new information and thus we see the report rather neutral for the share.

Solwers published a profit warning on Saturday 1 February, stating that Q4 2024 EBIT is close to zero compared to EUR 1.5m a year ago and our estimate of EUR 1.2m. The EBIT for 2024 will thus be ~EUR 2.5m versus EUR 4.8m in 2023 and 33% below our estimate of EUR 3.7m. Until getting more info on the magnitude of one-offs and factors impacting 2025 estimates (Q4 report out on 27 February), it will be hard to estimate impact on 2025 estimates. However, mathematically cutting the Q4 EBIT delta of EUR 1.2m from our 2025 estimates (assuming a lower starting level for EBIT from 2024) would result in EBIT estimate revision of -25%, which is likely too harsh given the unspecified one-offs in Q4. Despite the share having been weak into numbers, we expect a clearly negative share price reaction.

Solwers posted Q3 2024 revenue growth of 21% y/y, entirely driven by acquisitions. Q3 EBIT was EUR 0.5m, down from EUR 0.9m a year ago. The decline was due to client caution in advancing projects, intense price competition and a somewhat lower billing rate y/y. However, Solwers' order backlog reached its peak for the year in the quarter, and the company sees the market improving, driven, for example, by lower interest rates. After the Q3 report, we decrease our top-line estimates for 2024-26 by 2-3%, and cut our adjusted EBIT estimates by 12-18%. Consequently, our DCF- and peer-based fair value range is cut to EUR 4.3-5.1 (4.8-5.7), which includes EUR 0.7 per share in present value of unannounced acquisitions. We believe Solwers will continue with its M&A-driven strategy and we foresee further margin improvement potential once the market recovers. - Marketing material commissioned by Solwers.

Solwers posted Q3 results that were on the weak side on profitability versus Q3 2023. Sales grew by 21% y/y in Q3 while reported EBITA declined by 13%. The company has this year moved to quarterly reporting from half-year reporting. The company has not disclosed comparison numbers for Q3 2023 and thus we have forecasted only H2 2024 numbers. The company posted net sales of EUR 16.6m, up from 13.8m in Q3 2023 marking 21% growth y/y on acquisitions. The reported EBITA was EUR 1.2m versus EUR 1.4m a year ago, down 13% y/y. The EBITA margin declined y/y from 10.1% to 7.3%. EBIT was EUR 0.5m, down from EUR 0.9m a year ago with an EBIT margin of 3.1%, down 3.5 pp from 6.6% a year ago. The order book reached its high of the year during Q3. For H2, we have modelled sales of EUR 41.1m and an adjusted EBIT of EUR 2.5m. In order to reach our estimates, Solwers would need to post sales of EUR 24.4m (up +28% y/y) and an EBIT of EUR 1.9m in Q4, versus EUR 1.4m in Q4 2023. We expect a neutral to slightly negative share price reaction despite the share having been weak into the Q3 numbers and down 30% YTD.

Operating currently in Finland and Sweden in the built environment consultancy sector, Solwers plans to expand its focus to new markets. Solwers’ board has decided to establish a subsidiary in Poland, and is currently exploring acquisition targets in the country. According to the company, significant investments are planned in Poland for infrastructure and the renewal of the energy industry. Poland is also emerging as a logistics hub for Central Europe. Additionally, a substantial part of the planning for the reconstruction of Ukraine is likely to take place in Poland. We note that Solwers has a considerable cash position and ample room for M&A. Expansion into Poland in particular was not on the cards, in our view, as our understanding has been that Solwers sees significant opportunities to consolidate the Finnish and Swedish markets. Selective acquisitions and projects could offer growth opportunities outside of Solwers’ core markets, with limited increase in the risk level from operating in a new geographical market.

Solwers posted H1 revenue 3% ahead of our estimate, as organic growth was slightly positive, while we had expected a slight decline. H1 EBIT of EUR 2.0m came in 27% below our estimate of EUR 2.7m; almost half of the negative deviation was explained by one-offs from e.g. higher contingent considerations from previously completed acquisitions, as well as costs related to preparation for its possible transfer to the main list of Nasdaq Helsinki. After the H1 report, we raise our top-line estimates for 2024-26 by 2-4%, but cut our adjusted EBIT estimates by 7-8%, as we forecast a somewhat slower recovery in profitability. Consequently, our DCF- and peer-based fair value range is trimmed to EUR 4.8-5.7 (5.1-6.0), which includes EUR 0.7 per share in present value of unannounced acquisitions. We believe Solwers will continue with its M&A-driven strategy and see further margin improvement potential once the market recovers. Marketing material commissioned by Solwers.

Solwers posted H1 revenue of EUR 39.9m, 2% above our expectations while profitability was lower due to e.g. preparation costs related to a possible transfer to the main list of Nasdaq Helsinki. H1 growth was 20% driven by acquisitions conducted in 2023 and early H1 in particular. H1 EBIT of EUR 2.0m declined by 21% y/y and the EBIT margin declined to 4.9% from 7.5% in H1 2023. Operating cash flow improved to EUR 1.1m from EUR 1.0m a year ago, The billing rate was largely unchanged at 82%. EPS was EUR 0.07 per share, down from EUR 0.15 y/y. The headcount at the end of H1 was 690. In the CEO comment it is mentioned that the overall market uncertainty has persisted. The company now expects moderate improvement in the business climate towards the end of the year and the outlook for 2024 remains unchanged. The company does not provide a financial guidance for 2024. We expect a neutral to slightly negative share price reaction.

Ahead of Solwers' Q2 report on 30 August, we update our estimates to reflect two acquisitions conducted in Q3, which on an annual basis increase revenue by ~4%. At the same time, we lower our organic growth estimate for 2024 from -2% to -3% and our 2025 estimate from +4% to +3%, as we see a risk of a somewhat postponed recovery in the market. Our fair value, excluding any unannounced M&A in 2025-26, remains unchanged at EUR 4.4-5.4, while we trim our fair value including unannounced M&A to EUR 5.1-6.0 (5.2-6.1). The Solwers share price has been surprisingly weak recently and is down 33% year-to-date. The share is trading at a substantial discount to all relevant peers and even without any unannounced M&A in our estimates, we see over 30% potential upside. Marketing material commissioned by Solwers.

Solwers’ subsidiary WiseGate has today signed an agreement to acquire 100% of Spectra Consult AB shares. Spectra Consult was founded in 2019 and today employs about 20 skilled consultants focusing on design and supervision for customers primarily engaged in the fields of electric power, national defence, and public civil engineering. Spectra Consult had revenue of SEK 19.9m (EUR ~1.7m) with an EBIT margin of 16.3% in 2023 and SEK 14.7m (EUR ~1.3m) with a margin of 15.9% in 2022. The acquisition will be reported as a part of Solwers as of 1 August 2024. Spectra Consult and WiseGate have collaborated for years on numerous projects and the acquisition seems like a natural continuation of this collaboration. The purchase price is not disclosed, but a part of the purchase price is paid in 62,471 newly issued Solwers shares (EUR ~220k) and the rest will be paid in cash. Based on earlier acquisitions made by Solwers’, we estimate the valuation could be 5-7x EV/EBIT, corresponding to a price of EUR ~1.3-1.9m, assuming the target has zero net debt. The acquisition adds ~1% and ~2% to Solwers’ 2024E sales and EBIT, respectively, accounting for the start of the consolidation period. Compared to full year 2023, the acquisition adds ~3% and ~6% of revenue and EBIT respectively. We view the news as positive, as Spectra Consult seems to be a well-run company with a strong financial performance, assuming the price is close to our estimated range.