Kreate Q2'24 earnings preview: We expect the market has continued to pick up

Translation: Original comment published in Finnish on 07/12/2024 at 7:25 am EEST 

Kreate publishes its Q2 result on Tuesday 7/16/2024. We still expect a double-digit revenue decline in Q2 and H1 as a whole to be weaker than H2 this year. We estimate that weak-margin projects ending will have a positive effect on profitability but low volumes and inflation (wages) push the result down in our forecasts. After a more moderate H1, we expect H2 to deliver clear earnings growth, confidence in which is boosted by the recent market pick-up and order flow.

We still expect declining revenue

We expect Kreate's Q2 revenue to decrease by 16% year-on-year to 72.1 MEUR (Q2'23: 85.7 MEUR). The fall in revenue is driven by a decreasing order book (Q1: -31%), as recently won projects are still in their early stages. The comparison period is also very strong. We estimate that in the Structural engineering business, revenue will continue declining once larger projects have ended. In Transport infrastructure construction, railway projects have already stimulated development, and growth can be expected to continue in the near future based on the company’s order flow. Another thing worth monitoring in Q2 is how projects have been launched during the spring/summer and how the order backlog has accumulated, as it also defines the growth opportunities for the whole year and the beginning of next year. The 34 MEUR Helsinki-Riihmaki railway project, the 200 MEUR Tampere passenger railway yard project and the projects announced in Sweden already provide good indications of revived activity both in the market and in Kreate's order flow.

We expect indications of improved profitability

We expect adjusted EBITA to decline to 2.2 MEUR (Q2'23: 2.6 MEUR) with a lower volume load. However, we expect the margin to remain at the level of the comparison period at 3.0% (Q2’23: 3.0%). We expect profitability to have been weakened by lower volume levels, tightening competition for infrastructure projects and wage inflation. However, we are waiting for signs of better underlying profitability, as old low-margin projects no longer have an impact this year and growth investments will start to bear fruit on the railway side and in Sweden. 

Seeking proof of a pick-up in the market and profitability in the outlook

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). In the outlook, we focus on market activity, where signs of improved development have already been seen as we explained above. Based on the company’s previous message, bidding activity and activity levels in general have improved and the market situation was even “very good” at the end of Q1. If the situation remains good also in Q2’s outlook, we can expect that the order book and revenue will start to accumulate better toward the end of the year. Rather than growth, the focus this year will be on profitability,  where better progress, both in terms of outlook and activity would be desirable.