Loihde - Valuation starting to appeal

Expecting healthy profitability, slight growth

Loihde reports its Q3 business report on October 30th. Loihde achieved significant profitability improvements during H1 on weaker comparison figures and we expect absolute profitability figures to level out y/y during Q3/H2. Y/y growth is expected to slow down from the mid-single digit growth during H1 based on the more cautious remarks from management. The overall market sentiment has also remained on the weaker side and earlier expectations of an upswing in economic activity appear to have been postponed further, supporting said narrative.

Remains well positioned given near-term uncertainty

Loihde currently remains in a rather good position given the market uncertainties, with profitability at healthy levels and a good operating cash flow outlook with a solid, cash positive balance sheet. OPEX development y/y was flat in H1, while inevitable slight cost pressure coupled with the current weaker demand situation remains a limiting factor to near-term margin upside. Recent profit warnings and outlook comments in the Finnish IT-services sector suggest continued demand weakness. In terms of growth the clear challenges for Loihde have been within its Data & AI and Digital Services business areas. Given weakness in the sector the growth outlook appears to remain on the weaker side, although the magnitude of sales decline should start to be reduced from comparison figures.

BUY (HOLD) with a target price of EUR 12.2

Given aforementioned factors and the company’s long-term potential under better growth conditions we see the current valuation levels starting to look appealing. Although the demand situation looks to remain weaker and as such poses near-term risks, H2 expectations were already on the lower side. With no changes to our estimates and the share price down slightly since our previous update, we upgrade our rating to BUY (HOLD) with our TP of EUR 12.2 intact.