Railcare Group: Awaiting new contracts

Following a 30% rise in the share price over the last three months, there is still at least as much potential left, but this requires the com-pany to start delivering on expectations regarding new contracts. Un-til that happens, we are not changing our justified price.

Contracting unexpectedly strong in Q1

The Q1 2026 report was broadly in line with our expectations, with Contracting in particular performing surprisingly strongly. Group revenue was 24% higher than Q1-25 at SEK 152.1 million (123.0 for Q1-25), which was 3% below our forecast. The operating margin im-proved significantly to 12.6% (3.6%) based on a profit of SEK 19.2 million (4.4), which was above our estimate of SEK 17.1 million.

New orders needed to hit 2027 targets

We have difficulty seeing Railcare reaching its revenue target of SEK 1 billion for 2027, and we reduce our forecast slightly further, while expecting continued growth in the years that follow. A delay of a new contract’s delivery a few months does not change the valuation much. Management does not appear any less confident about achieving the 2027 targets now than previously, and given the large, high-profile contracts the company has secured over the past two years, there is little reason to doubt that new contracts will be secured. However, ink on paper will dispels doubts about the company’s ability to succeed, so we look forward to such contracts being announced soon.

The organisation is scaled up to handle new volumes, and an operat-ing margin of almost 12% was achieved already during the seasonally weak Q1 this year despite the UK still weighing on results, the outlook is good for the margin target of 13% for 2027 to be met.

Good risk/reward

With 2027 so close, we shift our forecast horizon to the end of 2029, with a broader outlook through to 2035. If, in our base case scenario, we assume our forecasts prove accurate and that the share trades at EV/EBIT=11, P/E=11 by the end of 2029, this justifies a current share price of around SEK 50, i.e. an upside potential of around 40%, or conversely an AROR of 30% including dividends. With good visi-bility and cautious assumptions for growth and margins through to 2035, a doubling of the current share price can be justified, and the AROR would be around 25% per annum until then.

The short-term risk is to secure new contracts as planned. Failing to do so on schedule risks weighing on the share price, which is why we are maintaining our previous justified price of SEK 40 for the time being. Conversely, the announcement of new contracts could trigger a continued positive trend in the share price.

In other words, the risk/reward profile appears attractive, particu-larly in the long term. Added to this is a structurally growing, cycli-cally insensitive business and good portfolio characteristics due to the diversification the share provides.