2027 remains in focus amid near-term pressure - Q3 initial

As previously communicated by the company, Q3 was a weak quarter. However, several aspects stand out, particularly management’s comments on the outlook. Due to supply-chain issues, the company lowered its 2026 guidance: top-line growth is now expected at 50–60%, versus 60–70% previously, while the EBIT guidance was reduced by SEK25m. As previously stated, we view 2026 as a lost year and our focus is on 2027. In this context, we view the 7%-point Q/Q gross margin improvement in the quarter positively. We also welcome management’s intention to reduce the cost base by SEK30m in 2027, supporting its financial target of a 10% EBIT margin in 2027.

2027 is the key year. Apart from the gross margin, few Q3 figures were strong. Nevertheless, the gross margin improvement is important for margin expansion in 2027e. The SEK77m order intake offers limited insight, as orders tend to be lumpy between quarters and Q3 is seasonally weak for defence order intake. Management also mentioned that the order intake was driven by many small orders and that the period missed out on larger orders.

Supply-chain issues must be resolved. W5 is not alone among defence companies in facing supply-chain challenges, but these issues must be addressed. We expect management to use the remainder of 2026 to ensure that supply chains are fully operational, which we believe will be essential for achieving its 2027 sales target. We would also like to see cost-saving measures initiated promptly, as they typically take time to deliver their full effect. Combined with an improved gross margin, we believe the planned cost reductions could enable W5 to reach a 10% EBIT margin in 2027, although this will be challenging.

A slow end to 2026 expected. Although a weak end to 2026 was widely expected, we believe the lower 2026 guidance could create selling pressure during the day.