Baltic Market: Who's Back to Growth?
In investing, few things offer greater satisfaction—and potentially higher returns—than finding a company emerging from difficulties at just the right moment. After a challenging period, several companies on the Baltic stock exchange have managed to break their downward trend and are once again showing profit growth. In this analysis, we look at five companies that have 'turned a corner,' examining the drivers behind their recovery and whether it is sustainable.
Harju Elekter has executed a remarkable turnaround, moving from a previous profit decline to strong growth. In the third quarter, the company's operating profit surged by an impressive 38.7% year-over-year, while sales revenue grew by 4.5%. This is a classic example of a successful recovery, where cost reduction (-4.6%) and revenue growth work hand-in-hand to restore profitability.
The success is not just due to cost-cutting but also a shift in the business model. Growth was driven by 'other services,' where revenue more than doubled, and by stable growth in the sale of electrical equipment. For investors, this is an encouraging sign that the company can manage its core operations more effectively. The share price remains stable, and the market is awaiting the annual report in February for confirmation that the positive trend will continue.
Media group Ekspress Grupp has managed to return to profit growth (+39.1%), despite general uncertainty in the advertising market. The company's sales revenue grew by 6.3%, and it's particularly positive that revenues grew faster than costs, indicating improved efficiency. The multi-fold increase in net profit confirms that the company has found a new lease on life.
The main driver of the recovery is not traditional media advertising but strategic acquisitions in the training and conference business, which have brought in new revenue. However, investors must consider a significant background factor: a buyout offer from the majority shareholder is circling the company, which is currently the main driver of the share price. Although the business is fundamentally strengthening, the biggest question for minority shareholders right now is the likelihood of a delisting.
Tallink has managed to pull its operating profit out of decline, showing 4.3% growth in the third quarter. This is a sign of stabilization after a difficult period. On the positive side, the company has managed to reduce costs for the first time in four quarters, while revenues have grown, supported by a 3% increase in passenger numbers.
However, there are clouds of concern over Tallink's recovery. Profitability is being held back by a significant decline in cargo transport—the number of cargo units transported fell by nearly 10% in the third quarter, and recent data shows the decline continuing in the fourth quarter (-7.4%). This suggests that while passengers are back on board, the economic slowdown has severely impacted cargo operations. Investors should be cautious, as the recovery may remain fragile without support from the cargo segment.
INDEXO's story is different from the others—this is not the recovery of an old giant but the rapid growth of a new player. The company has managed to reduce its operating loss and is clearly moving towards profitability. The bank's rapidly growing loan portfolio has begun to generate significant interest income, which helps cover the high IT and development costs associated with its launch.
For investors, the keyword is 'expansion.' The recently initiated takeover of DelfinGroup is a strategic move that should significantly accelerate INDEXO's growth and path to profitability. Although the company is still technically loss-making, the direction is clear, and the explosive revenue growth (+167.2% in the second quarter) shows that the business model is working. This is a bet on future growth, not on stable cash flow today.
Lithuanian paper producer Grigeo has made a strong comeback, turning a previous decline into 24.3% operating profit growth. Similar to Harju Elekter, the key here is efficiency: sales revenue grew by 4.5%, while operating costs decreased by 6.3%. This shows that the company has successfully optimized its production.
The recovery is mainly driven by the paper segment, which has managed to compensate for weakness in the market for corrugated cardboard raw material. Although the share price has corrected slightly recently, the fundamental picture has improved. Grigeo is a good example of a cyclical industrial company that has managed to survive a market downturn and is emerging with stronger profitability.
Conclusion
In summary, we are seeing several different types of recovery stories on the Baltic stock exchange. Harju Elekter and Grigeo offer classic industrial efficiency gains, which are the easiest for investors to understand. Ekspress Grupp's strong results are overshadowed by the uncertainty of a potential delisting, while for Tallink, the return of passengers is positive, but the decline in cargo is a warning sign. INDEXO, on the other hand, represents aggressive growth, betting on future synergies. Investors should watch to see if these positive trends hold up in the coming quarters, especially given the general cooling of the economy.
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