Can AF Gruppen’s Record Backlog Sustain Its Profit Momentum?

AF Gruppen ASA, one of Norway’s largest construction and civil engineering companies, posted a dramatic turnaround in its second-quarter results for 2025, delivering earnings before tax of NOK 388 million compared with just NOK 21 million in the same period last year. Revenue climbed to NOK 7.81 billion, up slightly from NOK 7.65 billion a year earlier, but the key driver was a surge in profitability, with the margin expanding to 5% from just 0.3%.

The results mark a significant rebound for AF Gruppen, underpinned by a record-high order backlog and improving performance across most business segments. However, despite this strong quarter, the stock has not kept pace with the broader Oslo market, raising questions about whether investors remain cautious about sustainability.

The standout figure of the quarter was AF Gruppen’s order intake, which jumped to NOK 8.07 billion from NOK 5.63 billion a year earlier, lifting the backlog to NOK 44.49 billion as of June 30. This level of contracted work gives the company its strongest pipeline ever, providing visibility in a sector often marked by cyclical volatility. For the first half of 2025, revenue stood at NOK 14.94 billion, little changed from NOK 14.84 billion a year earlier. But profit before tax soared to NOK 603 million from NOK 207 million, demonstrating that efficiency gains and improved project execution are now flowing to the bottom line.

Civil Engineering continued to be AF Gruppen’s backbone, generating NOK 2.87 billion in revenue against NOK 2.40 billion last year. Earnings before tax climbed to NOK 202 million, with margins expanding to 7.1% from 6.4%. The Construction unit, however, posted mixed results. Revenue rose to NOK 2.38 billion, but profit fell slightly to NOK 92 million, with margins narrowing. Betonmast showed encouraging improvement, lifting profit margins to 5.5% despite lower revenue.

Offshore operations, which have been a drag in recent years, delivered one of the most striking turnarounds. Although revenue held steady at NOK 282 million, losses narrowed drastically to just NOK 4 million from NOK 241 million a year earlier. Similarly, Swedish operations returned to profitability, posting NOK 76 million in earnings after recording a small loss in the same quarter of 2024.

Cash generation softened slightly, with net operating cash flow falling to NOK 580 million from NOK 661 million. Nonetheless, financial resilience improved as net interest-bearing debt was reduced to NOK 263 million, down sharply from NOK 979 million a year earlier. The equity ratio also strengthened to 21.3% from 19.2%, giving the company more flexibility for future investments and project financing.

Despite the sharp earnings recovery, AF Gruppen’s stock closed at NOK 152.80 at the end of June, delivering a return of 6.5% in the first half of the year. This lags behind the Oslo Børs Benchmark Index, which rose 13.8% over the same period. The muted share performance suggests investors remain cautious, perhaps wary of execution risks or the cyclical nature of the construction sector. Still, the combination of improved profitability, a record backlog, and strengthened balance sheet positions AF Gruppen favorably. With Norway’s infrastructure demand remaining strong and efficiency measures beginning to pay off, the company may be better placed than in recent years to weather potential economic fluctuations.

The second quarter demonstrated AF Gruppen’s ability to translate a strong order book into profit growth while also stabilizing historically weaker divisions. The challenge now lies in sustaining this momentum as input costs, labor availability, and project execution risks remain potential headwinds. For investors, the company’s backlog provides a cushion of visibility, but share performance may remain subdued until AF Gruppen proves that profitability gains are not just cyclical but structural. As Norway’s construction sector faces shifting market dynamics, AF Gruppen’s execution over the next few quarters will determine whether its Q2 surge marks the beginning of a lasting uptrend or a temporary rebound.