Railcare: Margin improvement in Q2 greater than expected

Market

The condition of the Swedish railways has been even more in focus during the past spring and summer, and demands for action are now being stepped up further from several parties. Additional funds have already been allocated, and there is now considerable pressure on the Swedish Transport Administration to get these funds out onto the tracks. The agency itself expects maintenance costs to increase by 10- 15% per year until 2029, and Railcare believes that this is finally starting to happen now, but two obstacles remain: Experienced contractors must dare to believe that the change is not just a temporary blip, but a permanent shift in the ambitions of both politicians and customers. Equally important is that, despite increased utilisation, sufficient time is allocated to the tracks to implement the necessary measures. This is where the solutions of different parties differ, but efficiency will be key, which will benefit smaller and more flexible players such as Railcare.

Turnover and results

Revenue for Q2 was roughly the same as last year at SEK 178 million (180 for Q2-24) and close to our forecast of SEK 183 million. Operating profit improved slightly to SEK 18.1 million (17.1), which was sig-nificantly better than the SEK 16 million we expected.

Transport's increase in sales – mainly attributable to the standby locomotive business – was not quite as large as we had expected, despite support from construction transport services, and sales in Contracting were also a few percentage points lower than in the very strong Q2-24. However, earnings in Contracting were significantly better than we had expected and almost matched last year's figures, thanks in part to a further increase in the volume of lining work. An-other positive surprise was Technology, where operating profit reached just over SEK 2.5 million (-0.7) – half a million better than our fairly aggressive forecast – on sales of SEK 36.7 million (27.6), which was also higher than we had expected.

Q2 EBIT better than our forecast

Overall, the above resulted in an operating margin of 10.2% (9.5%; our expectation: 8.7%) for the Group, despite continued upscaling costs for both the standby locomotives that will be put into service during the year and a larger organisation to accommodate additional business. Further down the income statement, however, net financial items were weighed down by a weaker krona at the end of June com-pared with the end of March, which affected the translation of the lease liability – something that will continue to have an impact from quarter to quarter without any real significance.

Conclusion: Target remains unchanged

In any given quarter, sales and earnings can fluctuate upwards or downwards. On a rolling 12-month basis, growth has slowed and the operating margin has declined by a few percentage points in recent quarters. This is entirely according to plan and, of course, a consequence of the scaling up of the organisation. We will return in our full analysis with an update of our forecasts, but our initial assessment is that both 12-month growth and margins will bottom out here and turn upward already in Q3. In the second half of this year, we expect clear revenue growth and double-digit margins. The longer-term out-look is preliminarily unchanged, with revenue for 2027 falling just short of the company’s SEK 1 billion goal and an operating margin close to the 13% target.

The company management appears no less confident now than before that it will achieve its targets for 2027. However, the investment hump we are currently in is necessary to get there, and we estimate that growth in the Contracting segment in line with the market's 10-15%, a couple of large transport contracts à la Kaunis/LKAB and continued growth in the Technology segment that can spread from the locomotive workshop in Långsele to Skelleftehamn will be required.