Here are also Olli’s comments on this investor event.
Sitowise organized an investor event on Wednesday, where the company’s Digital Solutions business was delved into. The event covered the role of the business for Sitowise and the growth opportunities it brings. In addition, the company presented its product portfolio. The day did not bring changes to our forecasts or views, but it provided interesting additional information about the products and services that Sitowise has in this business area. A recording of the event can be viewed here.
The IR newsletter preceding the quiet period has not been here yet.
There’s not much new there. The recovery of the construction market is expected in the second half of 2025, but even that is viewed with reservations.
The growth of Infra and Digital Solutions is slowed by increased competition and price pressures, and additionally, for Infra, by a slowdown in demand due to the weakness of the construction market, and for Digital, by weak private sector demand.
It seems over 20 NextGen trainees are being sought.
The waiting for the market to pick up continues, continues…
Olli Koponen has prepared an extensive report on Sitowise, which is, of course, available for everyone to read, like all extensive reports.
We reiterate our reduce recommendation for Sitowise and revise our target price to 2.70 euros (previously 2.50 €) in connection with the extensive report update. Sitowise, which focuses on technical consulting for buildings and infrastructure and digitalization, has suffered significantly from the weakness of the construction market in recent years. The industry’s best profitability has eroded due to low workload, increasing costs, and challenges in international growth. As the market picks up, the earnings leverage will also work upwards, but the risk is that profitability challenges will continue longer than expected. The valuation is challenging for the coming years and, in our opinion, does not sufficiently account for the risks.
After a few weaker years, we forecast 2026-2027 to be years of strong growth for Sitowise as well. We estimate the market situation to be significantly better, returning the company to a growth trajectory, led by the Building (Talo) business. Growth is further supported by the company’s expanded offering, favorable long-term market trends, increased penetration rate of consulting, and Sitowise’s digitalization expertise. We expect revenue to grow by approximately 9% in 2026 and approximately 7% in 2027, reaching 228 MEUR.
Topics:
00:00 Introduction
00:16 Company’s Business
02:33 Utilization Rates
05:10 Finnish and Swedish Market
09:09 What Competitors Do Better?
12:25 Strategy and Financial Targets
17:48 Recommendation and Valuation
Changes are coming to Sitowise’s board. Mats Åström and Anni Ronkainen are leaving the board, and German Rodolfo Zeidler, who is on the payroll of the largest owner Paradigm Capital AG, is joining as a new member. Paradigm owns 15% of the share capital, which is roughly equivalent to Intera’s stake, whose Tomi Terho is already on the board. Osakkeenomistajat | Sitowise
What could this imply? The largest owner, having grown, probably wants to influence the company’s direction more actively - could there be cost-cutting measures or new deals? Could Sitowise itself be for sale to some international design/consulting organization?
The share price development has been dismal, and trading volume is low. From the perspective of guidance and the market, it seems that the worst for construction might be over, but there’s no sign of an upturn. Recently, Sitowise has won major infrastructure projects, but the situation in the building sector remains challenging. Additionally, there’s a lot of news and initiatives regarding “digital services,” but I’m not convinced that new products, for example, will gain enough traction and profitability relative to development costs - on the other hand, Sitowise is one of the national pioneers in spatial data and its utilization, for instance, concerning urban map services, and the company seems to be involved in (mega)trends.
It certainly requires patience to be an owner, as there are more attractive opportunities in the market.
This is starting to worry me too, as I ultimately bought this mainly because of the digital services. Especially now that Anni Ronkainen is leaving so quickly. Many, including myself, were enthusiastic about her board position:
Here are Olli’s pre-earnings thoughts as Sitowise publishes its Q4 results next Wednesday.
Sitowise will report its Q4 results on Wednesday, February 12, 2025. We expect the revenue for the last quarter of the year to have decreased due to the weak market situation in building construction and the timing of the Christmas holidays. However, we expect profitability to have improved due to cost-saving measures in the Swedish business and significant IT system costs incurred in the comparison period. After a weak 2024, the focus will nevertheless be on the guidance and outlook for the future. Cash flow development and the improvement of the financial situation are also key this year, and we will be monitoring this closely already in the Q4 results.
”Sitowise’s market environment remained challenging in the last quarter of 2024. Our revenue decreased by 7.6 percent from the comparison period to 48.8 million euros, and the adjusted EBITA margin fell below our expectations to 2.4 percent. However, operating cash flow remained stable at 10.9 million euros.”
”The strong performance of the Infrastructure and Digital Solutions businesses continued, and profitability remained above the target level. The Infrastructure business succeeded particularly in several important tenders, including the program alliance for Helsinki’s light rail projects. In the Digital business, the most significant success was the over 10 percent growth in product business.”
”In the Buildings business, the last quarter for construction management and renovation was clearly stronger than the previous one, and in Sweden, sales picked up in building services engineering and infrastructure design. However, structural engineering suffered in both business areas from a very low workload, which caused the development of Buildings to fall significantly short of expectations, and the anticipated turnaround in Sweden only partially materialized.”
”Structural engineering accounted for approximately 16 percent of Sitowise’s 2024 revenue at the group level, and its situation was further weakened by the almost complete halt in new housing production in Finland and the low level of new commercial property construction in Sweden. The recovery of new production is generally predicted to occur in late 2025, but the probability of it shifting to 2026 has significantly increased. During the review period, we implemented significantly more extensive temporary layoffs than before and further reduced personnel, and it is essential for us to continue with additional adjustments going forward.”
Construction in Finland is dire, and no improvement is in sight. It’s positive that things are starting to happen in Sweden!
Despite the praised business cash flow, this result is really bad compared to expectations. And as the cherry on top, no guidance is given (or able to be given) for 2025.
If someone believes in the company in the long term, opportunities may arise in the coming days to jump on board.
Exactly. In my own portfolio, Sitowise has about a 3% weighting and can stay there for now. Let it act as a sniff test for the construction sector’s economic cycle, as I assume their results will turn first when construction picks up. Additions will be made when the turnaround is concretely visible, not just in talk.
This one also trades at 0.8 times its book value at yesterday’s price, is there something questionable in the balance sheet, @Olli_Koponen!? The question with these is always whether they’ll get through a bad cycle with only reasonable damage!? According to the ownership list and flaggings, foreign investors are still quite interested in the stock, and that has provided some support.
I have a thought that the planning for many future projects has already been done, and it’s not worth planning much more in advance. Could it be that construction businesses recover first this time?
Sitowise’s competitor Granlund published its 2024 results today.
“The design and consulting company Granlund achieved a positive result during 2024. The group’s net sales grew by approximately 9% from the previous year, reaching €152.1 M€ (€139.3 M€). EBITDA was €20.4 M€ (€18.1 M€) and operating profit was €14.4 M€ (€12.7 M€)*.”
Certainly to some extent it is, but when money starts flowing into construction again, even more new projects will emerge. Many construction companies are currently in a tight spot, and there is a significant number of unsold apartments on their balance sheets. I don’t know, but I would imagine that there hasn’t been a rush yet to plan anything extra for the plots they own. It would tie up capital, and there’s no information about its realization.
I go around among architects for work, and yes, quite a few apartment buildings have been built for inventory. That’s my gut feeling. It could be wrong, and I don’t have specific information about Sitowise.
I still have the view that first, an upturn will start to be seen in, for example, Kesko’s building material sales, followed by construction companies and design/consulting, perhaps even at roughly the same pace.
There are probably planned projects ready with big players like YIT and SRV so they can strike when the time is right. Revenue generation will then take a while. Once the planned projects get started, the planning of new ones will follow quite soon, and supervision etc. consultants will start billing already during the construction phase.
At Sitowise, it seemed to be quieter in infrastructure sometimes, as an acquaintance wondered if there was work, but then they seemed to win something bigger.
What I said isn’t super strong information, but for example, in one large office that designs a lot of apartment buildings, they said last autumn that they had gotten further by designing new projects for clients ‘for stock’, but then they had to reduce staff, as you probably can’t design many batches for stock if the previous ones haven’t even been decided to start.
Sitowise is, of course, involved in consulting, supervising, also in infrastructure, etc. I’m on the architectural side, which relates to my own work, and my own projects are related to public sector construction.
Quite a few offices have had fewer people, some have moved to smaller premises, and there have been many corporate acquisitions, certainly because it has been difficult to cope. Part of this is that tendering favors these large companies, and smaller, good and experienced architectural offices can be in trouble. Which is quite foolish.
