Margin keeps moving towards 5% - Q3 review

Terranor accelerated its margin expansion in Q3, which is important, in our view, as it is a sign of its strategy working. The new contracts have higher margins than the old ones and, as the old ones are phased out, the margin should continue to expand towards the target of 5%. We expect volume in the market to keep growing in 2027 and believe Terranor will continue to gain share. We leave our fair value range unchanged at SEK35.0–50.0.

Sweden will likely continue to drive growth. Revenues grew 17% Y/Y, with Sweden being the main driver with 26% Y/Y growth. Except for new contracts coming into operation, there is increased volumes and more extra works in existing contracts. There are also new framework agreements being tendered, which further increases volume. We expect the volume in the market to keep growing in 2027.

EBITA margin is moving towards the 2028 target. Terranor’s EBITA margin grew by 80bps in Q3, accelerating from the Q1 and Q2 pace. Management sees further margin potential in new contracts as start-up costs subside and operational efficiency improves over time. The gradual replacement of older, lower-margin contracts with more profitable ones should also support continued margin expansion. The EBITA margin target for 2028e is 5%, which together with sales of SEK5bn gives EBITA of SEK250m, a 37% EBITA CAGR for 2026–28e.

Approaching tendering season. The Swedish tendering season, a key annual event for Terranor, takes place from January through March. In 2026 six of Terranor’s contracts were retendered but Terranor defended the number of contracts and gained market share. In 2027 four contracts will be retendered, and we expect Terranor to continue to gain market share.

Limited estimate changes. We make low- to mid-single digit cuts to 2026–28e EBITA on the EBITA margin falling short of our Q3 expectations and cut adj. EPS by 3–4% because of higher interest cost. We leave our fair value range unchanged.