In our view, LapWall's Q1 report can be interpreted as a slight defensive win given the challenging overall picture for the construction sector. We have not made any material changes to our near-term outlook for LapWall, but the strong start to the year and the guidance provided have lowered the risk level of the stock.
In light of RT’s forecasts, the short-term estimates for construction product companies, i.e. LapWall and EcoUp, still involve downward risks despite recent estimate cuts.
We included the expected investment decision that LapWall sealed last week for the Pyhäntä unit in our forecasts. We expect it to create value for shareholders as profitable growth but expect the benefits to be clearly visible in the figures only from 2027 onwards. In the shorter term, we believe the stock will be driven by the development of the Finnish construction cycle in particular and the company’s earnings outlook for 2024-2025, which depends on it.
The confirmation of the investment was expected and we are positive about the project, even though it is very large by LapWall standards. We will include the project in our LapWall forecasts in the near future, but it will not affect our short-term earnings forecasts. In the longer term, the timing and magnitude of the benefits of the investment relative to our current forecasts will depend in particular on LapWall's ability to gain market share in the Finnish market for prefabricated elements and also on the timing of the turnaround in the construction cycle.
LapWall's Q4 report was slightly weaker than expected as a whole, due to lower order backlog than we predicted, the increasingly bleak outlook for residential construction, and the slight Q4 earnings miss. However, the report had a limited impact on LapWall’s overall picture, and we still expect the company to achieve significant earnings growth with its competitive advantages as the construction cycle turns.
LapWall will publish its H2 report on Wednesday at 9 am EET. Given LapWall's narrow and unchanging guidance for the whole year (2023 adj. EBIT 4-4.5 MEUR), the surprise element with the Q4 figures is quite limited. In its short stock market history, LapWall has only provided earnings guidance after H1, so the guidance is unlikely to give a clear indication of expectations for the current year.
The investment plan is very large on LapWall's scale, and we estimate that it would enable the company to grow above the revenue target of 70 MEUR set for 2026. Limited information makes it difficult to assess the investment in more detail. With LapWall's competitive advantages, aggressively seeking market share has attractive features, especially if customers can be earmarked in advance for the new capacity and the financing of the large project is arranged efficiently.
LapWall will pay the final EUR 0.9 million installment of the KW-Component prefab business in cash instead of shares. We are positive about the change because of LapWall's strong balance sheet and the low valuation of the stock. However, due to the small size of the installment, the pressure on our estimates caused by the change in payment method is small.
The overall picture of the Q3 report published yesterday by LapWall was disappointing as new orders remained low.
LapWall publishes its Q3 business review on Tuesday. We expect that LapWall has performed well in Q3 despite a very mixed market situation, but the company will fall clearly short of the strong comparison figures.
The weak cycle in the construction sector also keeps the risks associated with LapWall’s forecasts elevated especially looking to next year, although so far, the company has been able to reach a tolerable volume due to the relatively normal pull of the roof element segment driven by industrial and public construction.
LapWall announced yesterday that the change negotiations initiated by the company in July will lead to the closure of the Raahe unit and the dismissal of all employees. Production will cease in the Raahe unit in early Q4. The unit will close by the end of November.
The overall picture in LapWall's H1 report released yesterday was slightly negative due to Q2 earnings miss and softer-than-expected guidance for the current year. We also made negative revisions to our short-term estimates, yet our confidence in the company's competitiveness and the progress of its strategy remains high.
LapWall will publish its H1 report on Tuesday. The company is building on reasonable Q1 figures given the market situation and we expect the company to have managed to defend its profitability moderately in Q2 as well. However, LapWall has no way of meeting the very strong levels of the comparison period, as the brisk decline in revenue driven by the wall element segment, which is linked to residential construction, is weighing on the bottom line.
The change negotiations to be initiated in the Raahe unit will involve all employees of the unit and they can possibly lead to the closure of the unit. This was not surprising, as we have already considered centralizing production at the Pyhäntä plant as a possible way to adapt to the challenging market situation.
LapWall is a prefabricator of wood-based wall and roof elements in Finland. LapWall's portfolio is well aligned with trends in the construction sector, and we believe the company is well positioned for profitable growth when the current miserable (residential) construction cycle normalizes.
