EBITA margin expansion accelerated - Q3 initial take

Terranor’s sales grew 17% Y/Y in Q3, in line with our estimate. The EBITA margin expansion accelerated, with an increase of 80bps to 3.4%, taking EBITA to SEK32m. Although EBITA was 11% short of our expectation, it is important to see it trending in the right direction. We believe a key topic in the conference call will be Q4 and the company’s ability to reach its full-year EBITA margin outlook of 3.9%.

Strong growth continued in Sweden. Sweden remained the main growth driver with sales increasing 26% Y/Y, supported by both new contracts and higher activity across existing contracts. Government spending on road maintenance continues to increase, and we believe this drives swellings. We expect demand to remain strong.

Margin expansion key to the equity story. The adj. EBITA margin expanded 80bps Y/Y to 3.4% (we estimated 3.8%). That it continued to improve Y/Y in our view shows that Terranor’s model is working and that new contracts are more profitable than old ones. However, the rapid growth at the associated start-up costs seems to have made it more challenging to translate higher volumes into improved profitability. We believe this is temporary. Management comments that improvement is not expected to occur at a steady pace from quarter to quarter and that Terranor is still fine-tuning contracts. Terranor has a 2026e EBITA margin outlook of 3.9%, and we think the market will likely question its ability to reach that, which we expect to be the key topic in the conference call at 09.00 CET. Despite the slower than expected improvement trend, we are not concerned about the company’s ability to reach its 2028 targets.

Cash flow strong for Q3. Operating cash flow came in at ~SEK23m, supported by improved profitability and working-capital management. That earnings growth is translating into cash generation is encouraging.