Ratos: A Doubling in EPS, but the Turnaround Is Still Uneven
Ratos reported a Q3 that looks, on the surface, like the clean inflection management has been promising. Organic growth came in at 6%, the fourth consecutive quarter of growth and +4% on an LTM basis. Adjusted EBITA grew 29%, adjusted EPS nearly doubled, and return on capital employed improved 160 basis points to 7.9%. The CEO called it a strong quarter; the CFO chose a more careful word: “progress” — Anna Vilogorac, CFO · 2026-10-23. That word is the right lens. This is a company moving in the right direction, but not yet a company that has arrived.
We are not fully content where we are yet, but we are definitely moving in the right direction.
The headline is strong — and noisy
The first thing to note is that the earnings inflection is real but assisted. Adjusted EPS almost doubled, and LTM adjusted EPS rose over 50% to SEK 3.8. But the tax line was unusually low at 12%, and management was explicit that the normalized rate is 17%–19%, with the benefit coming from U.S. net operating loss utilization as defense activity at Diab picked up. The balance sheet leverage ratio of 1.1x also looked better than the underlying cash generation because non-operational one-offs — the Sentia sell-down and an M&A insurance receipt — flattered it by roughly 0.3x. And then there was the cash flow: down almost 70%. Anna Vilogorac was quick to frame it: “We saw quite a staggering cash flow decline, almost 70% down, but we need to remind ourselves that in the same quarter last year, we got this settlement of SEK 700 million.” — Anna Vilogorac, CFO · 2026-10-23 There was also a timing hit from currency hedges on internal loans as the Norwegian krone strengthened. Optical or not, the quarter is a reminder that Ratos still earns money in some businesses and consumes it in others, with seasonal unwinding at Plantasjen and contract assets at Presis Infra moving working capital around.
Two portfolios, two speeds
The portfolio is not one company; it is a set of companies moving at very different speeds. Across the portfolio company base, almost all improved profitability, but the quality of that improvement was concentrated. Product companies and infrastructure carried the quarter: Diab’s defense mix lifted ROCE to 16.6% from 7.4%, HL Display posted 21% ROCE, and Presis Infra grew organically 20% on price indexation. But the industrial service companies remain the drag. Aleido’s organic sales fell 7%, TFS’s service revenue dropped 8%, and Speed’s ROCE was negative 2.2% as automation projects continued to weigh on profitability. Knightec is the first green shoot, with management saying it is turning the corner.
Diab is the clearest example of the mix shift. Organic growth slowed to 1%, but that is partly deliberate: Ratos has been reducing exposure to Chinese wind and leaning into defense. Gustaf Salford put it this way: “Diab has been able to transform from being very dependent on wind volumes ... into being much more diversified customer portfolio.” — Gustaf Salford, CEO · 2026-10-23 That is a genuine customer diversification story, and it is why the margin has held up even as the top line slowed. The risk is that defense orders can be lumpy; on an earlier call, management already warned that the steep incremental margin improvement should not be extrapolated.
Speed is the other side of the coin. Its 32% organic growth was helped by larger new contracts, including Plantasjen, but the automation projects are still depressing margins. On the Q1 call, management said the automation was expected to go live “during the autumn” — Gustaf Salford, CEO · 2026-05-04; by Q3 the language had shifted to being “almost fully ramped up here in Q4” — Gustaf Salford, CEO · 2026-10-23. That is not a contradiction, but it does show how long the drag has lasted. The analyst rightly asked how dependent Speed is on Plantasjen, a non-core asset that is up for sale. Salford pushed back: “I would not say it is very dependent on Plantasjen.” — Gustaf Salford, CEO · 2026-10-23 The commercial contract stays regardless of ownership, the CFO added, which is reassuring but does not erase the concentration question. Speed’s opportunity is in the 3PL area, where demand is real, but so is the execution risk.
The strategic story has not changed — but the clock is ticking
Ratos 2030 still means a more focused Ratos: sell non-core consumer companies, build platform companies through add-ons, and improve ROCE. HL Display’s acquisition of Top Global in October fits the template — a bolt-on at attractive multiples that strengthens its European in-store merchandising position. The consumer companies — Kvd, Oase, Plantasjen — all improved top and bottom line, but Q3 is their low season and the divestment processes remain opaque. Salford would only say: “We will update you as soon as we have more information to share.” — Gustaf Salford, CEO · 2026-10-23 On the prior call, the line was similar: “the priority right now is to follow the divestment plan” — Gustaf Salford, CEO · 2026-07-17. Investors have now heard that for at least two quarters.
The Q&A was unusually thin — one analyst, four questions — so the capital-allocation debate that framed earlier calls did not resurface. In prior quarters, analysts pressed on buybacks; management’s line was “never say never on buybacks, but it's not our primary focus right now” — Gustaf Salford, CEO · 2026-02-16. With leverage at 1.1x and one-offs flattering the ratio, the buyback question is not going away, even if it went unasked this time.
What would make the EPS durable
The key is converting earnings into cash and lifting ROCE. A 7.9% return on capital employed is better than where Ratos was two years ago — up 300 basis points — but it is still not obviously above the company’s cost of capital, and management admits there is more work to do. The industrial-services recovery needs to become self-sustaining rather than a story about automation projects finally ramping. The tax rate needs to normalize without taking the EPS growth with it. And the non-core exits need to happen at values that justify the wait.
The global tape offers little read-across. Ratos is not an AI data-center or Fed-rate story; its keyword map is company-specific, with only Defense showing real cross-market confluence through Diab, Aibel and Aleido. The company’s own price tape was unavailable in the context, so we cannot judge whether the market has already rewarded the inflection. What we can judge is the operating evidence: four quarters of growth, a broader base of improving companies, and a balance sheet that still has room for add-ons. The missing piece is proof that the industrial-services drag is truly cyclical rather than structural, and that the non-core exits will happen at values that justify the wait.
Ratos is therefore a genuine “show me” story. The progress is real, but it is uneven, partly engineered by mix and tax, and still dependent on asset sales that management will not yet detail. The shares may deserve credit for the inflection; they do not yet deserve the benefit of the doubt on the turnaround.