Yesterday I was wondering if I should lighten up, because there has been uncertainty in the air and valuation has tightened. Then I read all the Finnish analysts’ earnings forecasts. I did not lighten up.
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The figures are quite soft. I really had to rub my eyes a bit when, for example, the EBITA margin dropped below ten percent.
However, there’s a surprisingly positive tone in the text for the current quarter already, and otherwise, the CEO’s review is quite “at odds” with the Q1 figures:
Incap estimates that the company’s revenue and comparable EBITA in 2026 will be clearly higher than in 2025.
Due to delayed component deliveries, some orders were pushed to the second quarter.
Due to lower volumes and utilization rates in the first quarter, our profitability was lower, but towards the end of the quarter, volumes began to improve, which supports a more positive development in the coming quarters of the year.
Our order backlog developed very positively during the quarter, creating a strong foundation for the year ahead. The order backlog was particularly strong in the defense segment, where we reached a record number of orders in the first quarter. As a result of successful sales work, we have received larger defense orders for our new units in Germany and Romania, which further strengthens our order book and predictability going forward. Following the acquisition, we are already seeing a positive shift in our customer base.
Even though I felt like putting on sackcloth and ashes after reading the figures, after the text section, I am still ready to surrender to new disappointments in the future as well.
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I made the same observation: the KPIs are particularly weak, but the narrative is pleasing. I’m sure the pace will pick up significantly towards the end of the year, as Otto promises.
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Same thoughts once again. The numbers, Apex Legends tournaments, and fire emojis are sickening, but the verbal guidance, with its positive tone and right choice of words, manages to lift the sentiment almost to the positive side. The share price certainly won’t stay in the green today.
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But how persistent are the challenges seen in Q1? To what extent will they continue to weigh on future quarters? In my opinion, these are the questions that need answers today.
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How has the war in Iran affected Incap? Have you observed customers increasing their inventory levels as a result?
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EPS was at the level of the comparison period, which was surprising when looking at the top lines. Balance sheet remains strong. Soon we’ll see if the market believes the CEO’s stories or the chilling figures relative to expectations.
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The numbers are poor, but there’s a use for the dunce cap once again 
. At least I haven’t noticed other Nordic contract manufacturers complaining about component-side problems in the early part of the year, so this burden came largely out of the blue.
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I once wrote down this company-specific note for myself:
“If anyone in the company mentions the words component shortage –> Sell everything”
I should probably take my own observations seriously, but let’s listen to the call first before hitting the sell button.
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Having tracked incap over many years, this is one of the first times ever I’ve seen Pukk be so optimistic in the call.
Incap has historically always been very conservative in what and how they speak about the future, not this time.
Very interesting.
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Having now finished the Q&A portion as well, I am very happy with my recent additions of Incap.
One extremely important caveat is Otto saying that they have fully fixed their customer dependency problem, and are at a very healthy share right now, whereas if you remember a few years ago, the biggest customer dropping their active order flow caused Incap to drop very hard. This has been their biggest issue, and now appears to be solved. Which is a reason for celebration
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Sorry, I just can’t pass this by without being a bit of a smart aleck 
Did Otto say that? In my opinion, the major customer risk wasn’t “solved”—it materialized. Victron’s temporary inventory adjustment has been going on for almost three years now… I don’t think we’re quite back to the figures and outlook we had when the biggest customer was pulling the load, are we?
“There’s no longer a risk of the spouse leaving” – while signing the divorce papers…
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If I recall correctly, it was stated as early as last year that the demand from the “largest customer” has normalized, and it wasn’t expected that demand growth would return to the levels seen a few years ago. That spike was an “anomaly,” which, if I remember right, was attributed to the component shortage and pent-up demand caused by COVID. In my view, it’s wishful thinking to expect a return to those same levels unless a new boom materializes.
The “solution” to the major customer risk would be a situation where no single customer is significantly larger than the others.
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Exactly. The largest customer’s revenue actually grew last year. Not much, of course, but it grew nonetheless (whereas the entire company’s revenue declined). On a pro-forma revenue basis, the largest customer’s share is likely in the 30% range. Everyone can price any potential additional risk still associated with that share for themselves, but it is a fact that the share has decreased significantly from the 70% level in 2022.
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@Otto_Pukk was interviewed by Antti about Incap’s performance and current activities. 
Topics:
00:00 Introduction
00:15 Q1 challenges
01:57 Component availability challenges
04:47 Profitability
08:13 Lacon acquisition
09:23 Lacon’s customer portfolio
10:49 Germany’s economic environment
12:57 Scale of the defense sector at Incap
14:57 Energy sector
16:38 Incap’s focus areas
19:32 What are the concerns?
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Around the 28:30 mark, he summarizes it up here, but also at the halfway point, he goes in depth.
Mainly that the shortage is driven by Lacon, but already fixed.
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Here is Nordea’s analysis of Incap.
Profitability (adj. EBITA margin) was weaker than we expected in Q1. Organic growth was flat in Q1, one reason being component availability problems. But no major problems in logistics or in transportation. Some orders were postponed from Q1 to Q2 but Incap is still confident regarding end demand and order intake. The company has not seen order cancellations but Germany could have remained a challenging market. Full year guidance is repeated but EBITA needs to be EUR 8.8m as average in Q2-Q4 2026 to reach a 20% increase in annual EBITA. January-February were weak but the company has seen an improvement in March-April why its full year guidance still looks realistic.
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Viljakainen has completed the Incap update following the Q1 results.
Incap’s Q1 was weak in terms of earnings and clearly below expectations, particularly due to revenue falling short. However, the company reiterated its guidance, and comments regarding the development of the order book were even exceptionally positive. Nevertheless, we lowered our short-term volume forecasts and, consequently, our earnings expectations slightly. Reflecting these changes, we adjust our target price for Incap to EUR 12.00 (prev. EUR 13.00) and lower our recommendation to the Accumulate level (prev. Buy). We still expect the company to catch up with earnings growth as early as Q2, which, combined with a reasonable valuation, still forms an attractive expected return on a one-year horizon despite increased short-term risks.
Quote from the report:
The balance sheet remains strong
Incap’s balance sheet structure changed significantly during Q1, as the EUR 50 million (EV excluding contingent consideration) acquisition of Lacon was completed during the review period. However, even after the acquisition, Incap’s balance sheet remains very strong, as the net gearing ratio rose to only 6% due to the acquisition and the tie-up of working capital in Q1 (Q1’25: -23%). Consequently, the company’s financial position remains strong and the balance sheet would also allow for new acquisitions. However, we primarily expect the company to digest and integrate the Lacon acquisition over the coming quarters, unless exceptionally attractive M&A opportunities fall into its lap.
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Hello Everyone here at Incap forum! And thank you for your excellent questions during the Q1 Webcast! Please find below summary of the Q&A:
Q: How much of the delayed Q1 revenue will be delivered in Q2, and how confident are you that the component availability is improving?
A: We haven’t reported the exact numbers on the revenue side, but what was postponed on Q1, will be delivered during the second quarter.
In general, there is a high demand of certain components in the industry, driven primarily by the development of AI and data centres. They are in priority as they are purchasing in large volumes and the rest of us are left a bit behind. But we don’t think that there is a systematic problem with the components because the component suppliers are working currently with increasing their capacity. This does not seem like a new component crisis, it’s more of a smaller disturbance .
Q: Was the component availability problem in Europe or in India ?
A: Availability problem wasn’t in any specific site but in certain types of components and specific product ranges that use similar components, and that affected the business in general.
**Q: Have you seen order cancellations due to weak economic environment or due to any other reasons?**A: We haven’t seen any order cancellations. Instead, we have a very strong order book, and we have received several orders, for example from the defence sector. The potential growth in that sector was of high interest when we did the Lacon acquisition.
We haven’t lost any major customers, so it is more about the normal slowness of the market mainly in January and February, and now it is picking up.
Incap is operating widely in different market segments now, and as we disclosed in the Q1 report, the proportion of our largest customer is more manageable nowadays. We used to have dependency on our largest customer but with the Lacon acquisition, Incap is currently a much more balanced company. Our risk profile regarding customer dependency is now significantly lower.
**Q: How much did the order book grow, and what is the size, margin profile, and product mix of the new orders?**A: We didn’t comment on the order book numbers in the report, but even though we had a slower start for the year, we maintain our guidance and look fairly positively on the year. When it comes to the order book in general, the defence sector is driving the main growth, and other sectors are more stable. Also, when it comes to the AI and data centres, even if the larger operators are taking care of the core and servers, there is plenty of electronics used for instance in cooling and energy backup systems and they provide opportunities for the smaller players like us who are not tier one EMS providers. Currently, that is also driving the growth, together with the defence and security sector.
Q: Is the inventory increase purely due to Lacon and the delays?
A: The majority of the increase is Lacon becoming part of the Group, but we are also driving higher inventory or work-in-progress due to the material availability as we have had delays in orders.
**Q: Is the Lacon integration progressing operationally and commercially well, and what are the biggest risks to achieving the expected benefits in 2026?**A: The integration is going well both commercially and operationally. Due to our decentralised model, also the new units within Incap have operational freedom. Still, Incap is focusing on getting them into our network where the units cooperate with each other and exchange knowledge. Including Incap Germany and Romania into those streams is the key thing.
We have also seen interesting development with cross-selling opportunities, customer bases, and geographical opportunities that we are exploring. We also see new requests and possibilities from new customers that see us in other light. With every step of getting bigger, Incap gets new interest from potential customers. The effects we will see in a couple of years’ time and we are also working on opportunities for the near future.
**Q: How has the war in Iran affected Incap and have you noticed customers increasing their inventory levels as a result?**A: In general, we don’t see yet any larger supply chain disturbances due to the war. In the long run, high oil price will of course affect everybody equally in the industry when it comes to ie. transportation costs, but we haven’t seen yet any major increases. Some of our defence customers and some other sectors have been increasing their inventory levels. A lot of military materials were used during the initial stages of the war, and the stocks need to be replenished. In other customer segments, we haven’t seen any panic buys or hoarding of materials. We haven’t yet fully seen how this impacts transportation and logistics. The costs have increased and that will be reflected in the prices and ultimately will be paid by the end-customer.
**Q: How is the business in India developing? Are there new accounts there?**A: We have had a very positive development in India. Our largest customer’s business is stable on their “new normal” level, and we see increase in other customer accounts. We are working there with some really interesting and exciting customers, and the cooperation goes well. Of course, the cycles are long, but we see how our work from developing and prototyping is already moving into normal production, and it will ramp-up over time to larger volumes. Also, now when the new units in Germany and Romania have joined us, there are several opportunities in India as well that we are pursuing with the new acquired customer base.
**Q: Which kind of components or component types have had availability issues?******A: Foremost the chips and some of the smarter, more expensive and advanced components have had problems. The more basic components are always available. This is also limited to some manufacturers as it depends on the designs of the products and what they contain.
**Q: If you're now focusing on the integration of Lacon, when can we expect** **another acquisition?******A: We have done a major acquisition and currently, our focus is on the integration work. I don’t think this is our last acquisition, and once we feel comfortable that we have taken good care of the money that we have spent, we will, sooner or later, open up that pipeline. However, I won’t give any timeline whether that will be late this year or in the beginning of next year, or even earlier or later. The integration goes very well, so perhaps sooner than later.
**Q: How has the Q2 started, and how would you comment on that? After the little bit soft Q1, what gives you the confidence that you can still achieve the 2026 guidance?**A: The end of Q1 in March was already picking up, and Q2 has continued on the same line, which gives us confidence. The strong order book that we discussed before, backs that up. Generally, we don’t see any other trends that would impact this negatively. Everything is going according to plan and I’m excited about the outlook for the year; it looks stable and good, and with the current information, I believe we will reach our guidance.
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