Infrea: Uneven terrain, but direction still right - ABG

Paving services delivering
Infrea delivered a mixed Q2, with sales 5% above ABGSCe. Organic sales were +8% (ABGSCe +5%, +29% Q1'25), due to Land & Construction (L&C) growing 16% organically despite a weak market. Adj. EBITA improved by SEK 5m y-o-y, SEK -7m below our expectation due to a one-off from the divestment of Mikaels Grävtjänst (SEK -3m) and a weak utilisation in L&C due to the weak market. Water & Sewage was flat, both in terms of sales and earnings, and we expect no change to this. Paving services delivered strong margins (12.3%), despite a weak performance in Duo Asphalt due to a quality issue. Management commented that the market remains tough. We expect adj. EBITA to increase by SEK 4m y-o-y in Q3'25e and then to continue with ~15% growth in H2'25e, supported by stable organic growth of 6-4%. Cash flow was strong at ~95% of adj. EBITA, and yielded a gearing of 2.0x.

Earnings growth to continue
We lower '25e-'27e adj. EBITA by 6-1% mainly on the weak market continuing, especially in the L&C market where there is large price pressure from smaller companies. We expect 10% organic sales growth in '25e, which together with gradually improving margins should support SEK 26m adj. EBITA growth (+SEK 17m '24) and a 34% CAGR '24-'27e. We still believe that Infrea could add growth through potential M&A.

Margins to improve and FCF to stabilise
We believe that Infrea is well-positioned to grow organically and improve its margins, given its exposure to underlying demand and to public customers (~55%), as well as support from M&A (13% sales CAGR in '21-'24). For '24-'27e, we expect Infrea to deliver sales- and profitability growth and FCF above peers and with slightly lower margins. The share is trading at 11-4x adj. EBITA on '25e-'27e with a 29-36% lease-adj. FCF yield, while peers are trading at 7-6x.

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