Kreate Q3'24 preview: The beginning of earnings growth

Translation: Original published in Finnish on 10/23/2024 at 7:21 am EEST.

Kreate publishes its Q3 result on Friday 10/25/2024. We expect revenue to continue to decline by double digits in Q3, driven by a weaker order book in Finland. However, we expect profitability to improve significantly as project margins improve during the year and price pressures gradually ease. Overall, we expect to see visible earnings growth in the second half of the year after a more subdued first half. This is well underpinned by the recent clear upturn in the market and the order flow. We are not making any changes to our forecasts or our view (Accumulate, EUR 9.0) before the result. 

Revenue still in decline

We expect Kreate's Q3 revenue to decrease by 14% year-on-year to 75.6 MEUR (Q3'23: 88.3 MEUR). The fall in revenue is driven by a declining order book (Q2: -24%) and especially the Finnish operations (Q3: -17%). In the much smaller Swedish business, we expect an increase in revenue (Q3: 18%). For Kreate, larger projects have come to an end and new major projects are still awaiting final decisions or completion of the development phase. Railway projects in particular have recently boosted development, and even during the quarter the company announced two different railway projects (eastern section of the Vantaa tramway 217 MEUR, Helsinki–Riihimäki 34 MEUR). However, the largest projects will start in the development phase and will not yet have a significant impact on Kreate's revenue or result this year.

Clear improvement in profitability towards the end of the year

We expect adjusted EBITA to increase to 3.1 MEUR (Q3'23: 2.9 MEUR) despite the lower revenue. As a result, the margin will increase significantly to 4.1% in Q3 according to our estimates (Q3’23: 3.3%). Based on what we have seen in the first half of the year, we expect Kreate's performance to have improved considerably in Q3, as old low-margin projects will no longer be able to impact profitability. In addition, growth efforts on the rail side and in Sweden are starting to bear fruit. However, profitability is still suffering from increased competition and low volumes. While it would be desirable for the market challenges to ease over the next few years, the most important thing for Kreate is that the projects progress successfully.

Outlook should be good

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). Based on H1, Kreate is well on track to meet its guidance, and we do not expect any changes in the Q3 report. In terms of the outlook, our attention is focused on the market activity, which we expect to have remained moderately good for Kreate's expertise. However, it should be noted that new construction is still very low and private infrastructure is also still suffering from a weak market. Nevertheless, we continue to expect an acceleration in order book and revenue growth as the year progresses. But the focus of Kreate's investment story is not on growth but on profitability, the potential and progress of which we expect to be further illuminated in the Q3 report.