Merus Power: Significant and atypical order to Egypt

Translation: Original published in Finnish on 6/5/2025 at 8:07 am EEST.

We view it positively that Merus Power is also growing in the area of high-margin power quality solutions in addition to lower-margin electricity storage. The order puts upward pressure on revenue forecasts, but we do not currently see a need to change our earnings forecasts or our estimate of the fair value of the share. In our view, our current earnings forecast for 2025 is already reasonably demanding, although the order now received supports the probability of the predicted turnaround in profitability.

The solution improves efficiency and reduces disturbances in water treatment

On June 4, Merus Power announced that it had received an order worth around 6 MEUR from Egypt. The order is related to a national infrastructure development project. In the project, Merus Power's active harmonic filters are used to improve power quality and reduce disturbances in water treatment and pumping. Application areas related to water treatment and pumps are typical for Merus Power's active filters and exactly the kind where the company aims to achieve growth. The order is currently a one-off, but similar orders are certainly possible in the future.

Sales of active filters are typically high-margin

The exceptional aspect of this project is its size, as Merus Power's active harmonic filter business typically involves distributed product sales with relatively small individual order values. Active filter sales are typically quite high-margin for the company, which is why the now announced order is likely to have a rather favorable impact on the company's profitability. The order will be delivered over the next 12 months, meaning it will likely be split between 2025 and 2026. Merus Power is familiar with the Egyptian market through distribution cooperation and previous power quality projects. The order now received has been in the procurement phase for some time, which is why we estimate that Merus Power has partially taken the potential order into account when setting its guidance for 2025 on February 6, 2025.

We see no need to change our earnings estimates

In our view, the order puts slight upward pressure on Merus Power's revenue forecasts for 2025. Although the impact of the now announced order on Merus Power's result is positive, we consider it likely that the company has anticipated this in its guidance for 2025 (our EBITDA forecast of 2.0 MEUR is in the middle of the 1-3 MEUR range). In addition, we see a risk that the rapid growth in the scale of business and deliveries has required the company to significantly increase costs, which in turn may limit profitability development. The profitability we forecast is still clearly stronger than the 2024 level (EBITDA 2024: -0.8 MEUR).