Kreate Q1 next Friday: A year of earnings growth

Translation: Original comment published in Finnish on 4/19/2024 at 7:09 am EEST.

Kreate publishes its Q1 result on Friday 4/26/2024. We expect the decline in revenue seen at the end of last year to have continued in Q1, against a very strong comparison period in terms of revenue at the beginning of the year. However, we expect profitability to have improved from the weak comparison period when project risk provisions and growth investments weighed on profitability. The removal of cost burdens from old projects should also support the result. However, in the case of Kreate, we expect H1 to be weaker than H2 this year and market activity to slowly improve towards the end of the year.

Declining revenue in the first half of the year

We expect Kreate's Q1 revenue to decrease by 12% year-on-year to 57.8 MEUR (Q1'23: 65.8 MEUR). The fall in revenue is driven by a significantly lower order book (Q4: -36%) and weaker market activity. For the full H1 of this year, we expect weaker revenue compared to last year. We believe that the Structural engineering business has held up better due to large projects, while in Transport infrastructure, railway projects are waiting to start. However, the early part of the year is typically quiet in the industry, with projects starting up again in the spring.

Improvement in result expected

We expect adjusted EBITA to improve from a loss in the comparison period to a positive 0.9 MEUR (Q1'23: -0.4 MEUR) and the margin to improve to 1.5% (Q1’23: -0.6%). We estimate that profitability has been negatively impacted by lower volumes and increased competition. However, the comparison period was affected by expenses related to railway construction and business development in Sweden. In addition, old projects continued to impose cost burdens on Kreate in the comparison period. On the lower lines, we forecast net profit to remain on the plus side and earnings per share to increase to EUR 0.02 per share (Q1’23: EUR -0.08).  

No change in guidance foreseen

In its guidance, Kreate estimates that its revenue in 2024 will decline and be in the range of 270-300 MEUR (2023: 320 MEUR). EBITA is expected to grow to 8-11 MEUR (2023: 7.8 MEUR). With regard to the outlook, we turn our attention to market activity, where we have already seen an improvement in the first part of the year. According to the company, bidding activity has improved and there has also been good news on orders from Sweden. However, we expect the market to remain quiet in the first part of the year, as even good bidding activity does not immediately translate into order flow. Rather than growth, the focus this year will be on profitability, which we hope will improve after two years of poor performance.