Railcare Group: Weakness in Q1

Investments, UK & lower volumes weigh on numbers
Compared to the seasonally strong start of last year, Railcare's turnover decreased by -4.9% in the first quarter of this year to SEK 123.0m (Q1-24 129.4). Mainly due to continued problems in the UK, Contracting lost 16.7% in turnover to SEK 42.5 m (51.0), but sales decreased slightly also in Sweden in the business area despite a high utilization rate, due to the type of assignments that was carried out. Transport increased turnover by +11.5% to SEK 77.5 m (68.6) thanks to increased volumes of transport orders and the two new contingency clearance locomotives since the start of the year. Adjustment of intragroup leasing of locomotives and machines was the main reason why turnover in Technology decreased by 27.5% to SEK 29.4 m (40.5).

Operating profit (EBIT) fell by 71% to SEK 4.4 m (15.1) despite a stronger krona this year and a late spring last year. The decline is mainly attributable to three factors:
• A major scaling up of the organisation to prepare for the 2027 targets (1 billion in turnover at 13% EBIT margin).
• Major problems remain with operations in the UK,
• Lower volumes than Q1 2024 and unfavourable product mix.

Rapid recovery in H2 and beyond
The company occasionally experiences slumps in individual quarters, but from here on earnings contributions from the clearance locomotives deal are likely to start rolling in at a rapid pace while start-up costs begin to fall away. We therefore expect H2 to be clearly stronger than H1 this year, with full of the deal effect from 2026.

For Contracting, Q2 has challenging comparables from Q2-24, when Railcare carried out a major infrastructure construction project according to the "pit stop model (link below)" (where jobs are carried out in parallel instead of sequentially). That project alone increased quarterly sales by around 25%. The company has not yet announced any similar project in 2025, but there is hope for the second half of the year.

The management does not seem any less confident now about reaching the targets for 2027 than they have been earlier. On the other hand, the investment hump we are in now is necessary to reach them.

The stock has clear potential
The effects of the ramp-up of the organisation have been difficult to predict but will soon be behind us as we enter more of a “harvest period” in H2. Structurally, the case remains positive. However, with the slump in Q1, growth has to quicken for sales to reach the company's target of SEK 1bn in 2027. IFRS 16, on the other hand, helps the company towards its target of a 13% EBIT-margin. The justified price remains at SEK 36/share, or 30% upside. In the longer term there is clearly more potential. In addition, the business is insensitive to the business cycle and the share diversifies any equity portfolio.