Dividends are coming…
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The dividend yield (0.08) can be considered reasonable (4.6% for a share bought at the current price). If the capital return is realized at the maximum level of 0.07, the investor would accrue €0.15/share (8.6% at the current share price). Share buybacks also permanently increase the share value, although the impact materializes over a long-term horizon.
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Here are Pauli’s quick comments on HK’s Q4 results. 
HKFoods reported its Q4 results this morning. Revenue grew in higher-margin channels but decreased as planned in industrial sales. Profitability slightly exceeded our forecasts. The company provided upward-trending guidance for 2026 – as expected. The dividend proposal was also higher than our forecasts, including the possibility of an additional distribution later. Overall, in our view, the report leaned moderately to the positive side.
Pauli interviewed HKFoods’ CEO Juha Ruohola regarding Q4
Topics:
00:00 Start
00:13 Drivers behind the strong Q4 performance
01:05 Development of the sales mix
01:57 Demand situation
02:35 Earnings growth
03:36 Beef price development
05:25 Profit distribution policy
06:40 Private label regulation
I have been trying to outline HK’s current year by identifying which events that weakened the 2025 results are likely not to occur in 2026.
Losses from discontinued operations
My understanding is that the discontinued operations were finalized in 2025, so therefore that 11.4 million loss will no longer be seen in 2026. Please correct me if I am wrong. However, if this is the case, it will result in a total earnings per share improvement of about 12.6 cents (listed + unlisted shares).
Interest savings from the renewal of the hybrid loan
Assuming that interest expenses do not increase through other means, the interest savings from the renewal of the hybrid loan will bring an earnings per share improvement of about 2.6 cents.
Food industry strike
In the Q2 2025 interim report, it was stated: “The good news of the spring’s collective bargaining (TES) round was the three-year industrial peace achieved for the food industry.” The strike’s impact on the Q2 result came through two channels, which were mentioned in the Q2 report regarding net sales as follows: “HKFoods’ net sales from continuing operations decreased by 3.5 percent to EUR 245.7 (254.6) million. Net sales were affected by the food industry strike in April and the scarcity of beef availability. The cool early summer slowed the start of the grilling season and affected the sales of seasonal products.” The strike was not the only factor reducing net sales, but it was significant enough to be mentioned.
In the Q1 2025 report, the effects of the strike were described as follows: “The strike significantly affected the availability of the company’s products and caused a pig backlog at the company’s contract farms, the clearing of which causes additional costs.”
The strike both reduced net sales and caused additional costs in the form of clearing the pig backlog. I am unable to reliably estimate the total impact of these on the earnings per share. Measured in euros, I would guess that the total impact on the result was at least hundreds of thousands of euros.
One calendar-based predictable thing that came to mind is that the first two business days of Easter week are still in March, so the first quarter should benefit slightly from Easter sales.
Weather cannot really be predicted, and it notoriously affects spring and summer sales. So we are waiting in suspense regarding the weather.
At the end of 2025, the company had EUR 51.1 million in cash. I scrolled back through old financial statements to find out when there was last this much cash at the time of the closing of the accounts. In the 2017 financial statement, it gets close with EUR 50.9 million. In the 2020 financial statement, it was EUR 46.8 million. The lowest point was in the 2022 financial statement at EUR 17.8 million. I stopped my scrolling at the year 2017.
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I also understood that there is still a delay in passing the increase in beef procurement costs (30%) through to prices. Of this, 20% has been passed through so far.
In April, beef products will see a 7–10 percent price increase. At least until now, the industry has signaled that the sharply risen prices have only been reflected in the producers’ pockets. I don’t know if any of the already announced April price increases will leave anything for the processing industry this time.
You really have to go back to 2013 for the cash position at the end of the year to have been even better than it was in 2025 (it was EUR 68.7 million then). Also, note that a second installment of the return was paid at the end of the year (it would have been around EUR 4.5 million). So, the performance has been strong.
The all-time high cash balance was in 2008, when it reached EUR 92.2 million. Of course, the share price was decent back then too, nearly EUR 20 at its peak (granted, there were half as many shares at that time).
First, for the sake of clarity, I should mention that Easter obviously recurs every year. It isn’t a clear distinguishing factor for 2025, except regarding the Q1/Q2 timing.
I spotted another interesting point in note 5 of the financial statements:
Paragraph 1: “Of the 18.9 million euro deferred tax asset, 17.7 million euros stems from losses in the group’s Finnish operations, unutilized depreciations (hyllypoisto), and non-deductible interest expenses.”
Paragraph 2: “The deferred tax assets are expected to be utilized regarding the losses in 2026 and, regarding the unutilized depreciations and non-deductible interest, essentially by the end of this decade.”
If I understand correctly, 17.7 million euros in tax assets are expected to be used in 2026. Of course, one must be careful with the wording expected to be utilized.
There would need to be quite a lot of taxable income for the taxes to amount to 17.7 million euros, or maybe I’m misunderstanding something. The tax authorities are unlikely to pay those assets in cash; they are simply the right to deduct them from future taxes.
In any case, in 2025, 4.5 million in income taxes were recorded in the income statement. My gut tells me that no income taxes will be recorded in 2026, so that would mean 4.5 million in savings compared to 2025. Per share, that’s roughly 5 cents. This comes with the small caveat that I may not be understanding the accounting practices correctly.
Deducting losses is, of course, only a one-time benefit, but it’s a benefit nonetheless.
On HK’s investor pages, there is a Q4 webcast presentation where, at around the 6:30 mark, CEO Ruohola says: “I have stated that the impact of the strike on our profitability was €2m.” That is likely a figure referring to the actual result, not a decrease in revenue; HK’s revenue last year was about €2.7m/day, so it’s unlikely he’s referring to that. Is it then profitability at the operating profit level or further down? Perhaps -2m from operating profit?
Yes, that sounds like it might refer to operating profit to me as well. It would be consistent with the fact that financial expenses and taxes occur regardless of the strike anyway.
It will be interesting to see tomorrow what kind of forecasts and recommendations the company receives. Revenue slightly missed expectations—will that lead to projections of more subdued growth for 2026 as well? On the other hand, the retail sector has signaled better sales figures.
The topline is unlikely to be a major question mark in the forecasts; they might shave off 5m. Instead, the question is where margin percentages can or will be set—will they dare to project an operating profit of over 3.5% or even 3.8% for the full year? And similarly, full-year financing costs, -10m?
Margins and net financing costs will likely land at fairly similar levels among analysts. The company’s valuation basis then always remains a matter of the investors’ own perspective. How much should HK’s valuation be below its peers, or should there even be a discount anymore? Can EV/EBIT be over 8, or must the dividend yield be at least 6%? Valuing with a DCF model is even more of a guessing game, not least because of what is plugged into the forecast for, say, the 2028-30 operating profit margin: 3%? 4%? Hardly anyone believes in the company’s 5% EBIT target at this stage, but in a DCF model, the difference between a 3% or 4% operating profit margin is massive.
I understand it so that the 17.7m consists of three parts: losses, deferred depreciation, and interest expenses. If they are, for example, 1/3 each, then does it mean that regarding the losses, they will be used in 2026, and the other parts by 2029? Not the entire 17.7m in 2026.
Deferred tax assets are not “cash receivables” and their utilization is not straightforward. I assume the company has had similar assets already in 2025, and yet 4.5m in taxes were recorded. I am no expert, but by distributing group contributions, you cannot always utilize those, which leaves a situation where taxes incurred in subsidiaries are still paid even if those assets exist. I believe that in 2026 the group will indeed pay some taxes on its profit; will it be the full 20% or something less?
Apparently, there was a reading comprehension error regarding that first paragraph. I indeed interpreted it as if that 17.7 million was entirely from losses, and the rest then from deferred depreciation and non-deductible interest expenses, but of course, that’s not how it is.
Well, I had to read more of that Note 5, and the last paragraph has a breakdown of the expiration of losses: “Tax losses from Finnish operations expire as follows: 3.0 million euros in 2028, 10.0 million euros in 2029, and 1.6 million euros in 2031.”
In total, those would be 14.6 million. But those seem to be indeed deductible losses, meaning they can be used to reduce taxable income. Consequently, the tax benefit would be, for example, with a 20% tax rate: 0.2 * 14.6 million = 2.92 million.
Pauli has written a new analysis of HKFoods following the company’s Q4 results
The streak of earnings improvements from recent years continued in Q4, with earnings and cash flow exceeding our forecasts. We see the company as well-positioned to continue improving its performance in the current year as well. Furthermore, the company will consider options for refinancing its current expensive bond, which is likely to significantly lower financing costs starting next year. Despite the recent rise in the share price, we still view the valuation as quite attractive.
Analysts’ price targets rose by approx. 10%, but at the same time, recommendations dropped from the buy level. It’s understandable; perhaps a sufficient target for 2026 is for the share price to head towards 2, as that price can be justified by EV/EBIT or P/E metrics and HK should have a discount of about 10% compared to peers. Because of the debt. In the market this year, there will certainly also be a need for profit-taking by those who got in at prices <1 EUR and, on the other hand, by those who are now reaching break-even after a long wilderness period – “never again.” And funds and institutions will likely stay away.
However, HK still looks cheap. The discount to peers may disappear as financing costs decrease, first when the bond (Jvk) maturing in 2027 is rolled over or replaced with bank loans, whereby the interest on 90m changes from 10 → 5-6%. This would mean annual savings of at least 3m. And then when the hybrid is paid off in 2028, this will save at least 1m, even if part of it is paid with other debt financing. Financing costs from the aforementioned will drop by 4-6m/year.
Looking a few years ahead, when the company’s revenue exceeds 1.1 billion, assuming the operating profit is 4% for the full year, financing costs are 6m, the hybrid is gone, and assuming a corporate tax rate of 18%, the EPS is approx. 30c/share. Half of this is paid out as a dividend, and if, for example, a 5% dividend yield is the valuation basis, then the base case price for the share is 3 EUR. The biggest question mark is the operating profit %; it’s not worth putting the company’s 5% target into the calculator, but it’s good that the target exists to keep eyes firmly on the ball, and one could assume that a 4% level is not satisfactory, making it a viable base case assumption. HK’s investments, or lack thereof, have been criticized; now it seems that since depreciation equals investments, over 30m/year remains for investments. Is that enough? I don’t know. Probably and hopefully, the current management won’t start making any major adventure investments; those have been bitterly experienced by the company. Organic growth is no more than 2-3%/year, but with good operational execution, HK has the potential even with that growth to be what it’s supposed to be – a defensive dividend machine.
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If EPS is €0.30
Dividend scenario:
50 % payout → €0.15
5 % yield requirement → €3.00
Mathematically perfectly consistent.
But…
The food industry doesn’t usually get a 5 % dividend yield requirement if:
- debt is high
- margins are thin
- earnings fluctuate cyclically
In that case, the market may price it with a 6–7 % yield requirement → share price €2.1–2.5.
So, €3 requires:
- a clear reduction in debt risk
- stabilization of earnings
- a credible track record for 2–3 years
The above is a partial quote from an AI analysis. Although HKFoods has been able to improve its performance, a “limit” is reached somewhere. That debt and its servicing are encountered in almost every analysis, including those made by the “machine.” The results definitely need to improve quite a bit so that funds remain for debt repayment while “generous” dividends are paid at the same time. My own guess is that the rise will stall around this two-euro stage. There, HKFoods can develop its operations and pay off debts. And most importantly, react to potential changes in consumer habits.
A 30c EPS for HK is perhaps a few years away, not now, but by then the track record will either have been established or it won’t. By then, the amount of debt will have decreased; that is also the company’s goal. The company will not distribute the entire profit; instead, a portion of it will be used for debt repayment—this is included in both the forecasts made for the company and in the company’s strategy.
Earnings fluctuate cyclically? Here I completely disagree; HK is a defensive company that has now improved its earnings for 12 (?) consecutive quarters in Europe’s worst operating environment, namely the Finnish market, in a country with record unemployment. Of course, the national economy could be even worse, but HK is still a defensive company.
Margins are thin and that is reflected in the valuation; P/S is around 0.16. Due to its non-cyclicality and defensive nature, a 5% dividend yield could be quite a relevant valuation. Atria is currently at 4.2%, and for the European industry leader Cranswick, the dividend yield is 2% and the P/E is 20. Its operating profit margin is about 7%.
The share price could well stay around two euros in the short term (<1 yr); there are so many different factors involved besides the company’s own performance that it is pointless to predict it. Over a timeframe of a few years, the company has the potential to become a defensive dividend machine.
The current year could also be evaluated by taking the 2025 operating profit as a starting level and seeing what could happen in the income statement in 2026. Of course, it’s not certain that the same absolute operating profit will be achieved in 2026, but the future always involves more or less uncertainty.
0.20 euros / share means a net profit of about 18 million euros. The 2025 profit before taxes is 18.7 million, and among the costs following that in 2025, a larger item was the write-down of discontinued operations, which I understand should no longer occur at all.
Tax expenses in 2025 were 4.5 million. Regarding 2026, not much is known about taxes other than my own estimate that there will be a credit of the 2.92 million euros I calculated earlier (assuming HK can fully utilize previous losses), but the final amount of tax cannot, of course, be known yet, as the tax credit coming through losses is then deducted from the accrued taxes.
So, if the same operating result were achieved in 2026 as in 2025, and financing costs were 2.4 million lower through the renewed hybrid, the taxable income would be 21.1 million. From that, only taxes would then be deducted. Viewed this way, an earnings per share of 0.20 could already be achieved in 2026 if taxes are 3 million or less. But this is, of course, based on assumptions that the business otherwise performs at least as well as in 2025, and then financing costs decrease by those 2.4 million.
Regarding financing, I am following the cash position with interest. If the aim is to systematically accumulate it, my interpretation leans heavily toward the idea that they aim to get rid of that 90 million bond to as large an extent as possible with the cash accumulated before redemption or the end of the term.
The reality regarding the cash position, however, is likely that it cannot be accumulated every quarter, as I understand that goods must be produced for inventory for the seasons.
That bottom-up simulation is one option, and you’ve arrived at the same EPS of 0.2 as in OP’s analysis. OP, however, has assumed an improvement in operating profit to a level of 40m, and taxes are rising to 5m (was 4m), so if there were an additional tax benefit of 2-3m on top of the increase in operating profit, the EPS would rise even more. The biggest question mark is the development of margin levels—is there still a chance to improve, and what levels can the company defend in the future now that the major turnaround has been completed?
Monitoring the cash position is a good point; I personally believe the company will pay off the 90m bond this year with some combination of a new bond/bank loan and possibly use cash to reduce the debt. Debt amount maybe -15m on an annual basis? And the next cash accumulation for the redemption of the hybrid loan. The dividend and potential extra dividend are approx. 13.5m – whether that is too much relative to cash and debt, each investor should decide for themselves.
And regarding the valuation of such a low-growth defensive company. P/E or EV/EBIT are decent metrics for what the company’s maximum value can be at any given time. You can crunch numbers endlessly, but the current share price of 1.82 and this year’s EPS of 0.2 do not include any growth assumption (PVGO); it is even negative. A DCF model can easily be made to show a value of 3 EUR if you assume that margin levels hold. The DCF currently results in a value of 2 EUR only if you dial down the residual margin level significantly. Not very useful to run those numbers for a company like this.
In my opinion, the dividend yield % represents a floor for the company’s valuation if the market believes that the dividend level is permanent and perhaps slowly but surely growing. Thus, the floor could be 5% in a “normal situation”, 6% if uncertainty increases, and 4% or below if performance is good for several years in a row and confidence is thus high.