Canatu H1'25: Growth was pushed forward

Translation: Original published in Finnish on 9/1/2025 at 7:00 am EEST.

We lower Canatu’s target price to EUR 10.0 (was EUR 12.0) and the recommendation to Accumulate (was Buy). The company's H1 figures were weak as expected, but the subdued outlook for the rest of the year was disappointing, and new reactor orders appear to be slipping into next year. Long-term targets were also pushed forward, as the transition to the latest high-power EUV machines within Canatu's customer base is taking longer than previously assumed. However, the market is still clearly emerging, and Canatu's position in it appears strong. This enables significant earnings growth for the company in the long term, and if realized, the stock has considerable potential. We now forecast the company to achieve its targets (revenue >100 MEUR and EBIT > 30%) in 2029 (was 2028), so patience is required for the growth story to materialize. Canatu remains a very interesting long-term growth company, but the sluggish short-term development currently limits buying interest to some extent.

H1 figures were weak as expected

Canatu's H1 figures were, as expected, weak without new reactor orders. Revenue decreased by 34% to 7.3 MEUR and the operating margin declined to -4.0 MEUR, which also reflects increased growth investments. The outlook anticipating declining revenue this year was disappointing. Without new reactor orders, revenue will decline significantly, which our lowered forecast now assumes (2025e 14.9 MEUR, -32%).

The long-term growth outlook remains credible, even if it will take time to materialize

Canatu was listed on the stock exchange last fall with ambitious growth targets, but already this year, short-term growth forecasts have had to be adjusted to be significantly more cautious than originally expected. In particular, previous expectations for the adoption of ASML's over 600-watt EUV machines have proven too optimistic, and these are now expected to be in use during 2027. In these, EUV pellicles made from Canatu's carbon nanotube membranes are practically mandatory, as current composite pellicles cannot withstand the heat and stress of the machines. Belief in strong future growth is also created by the fact that Canatu's competitive position appears to have strengthened during the year in relation to Japanese industrial conglomerates (Mitsui and Lintec). This is evidenced by the company's progress with existing customers and the interest of new potential customers in its reactors. According to the company, no deals have been lost to competitors either. The long-term potential thus remains unchanged, but its realization will take longer than originally estimated. This is not particularly surprising in the early stages of a completely new market's development, but investors rarely rejoice at kicking the can down the road, even if it is now more due to external factors (market development, customer delays in acceptance tests) rather than the company's own operational performance. Based on the H1 report, we have lowered and shifted our expectations for the ramp-up of the reactor business to focus more on the end of this decade. However, the company will have an opportunity next year to prove its return to a strong growth trajectory, for which the upcoming reactor orders should provide a good starting point.

Stalling growth weighs on the share

Canatu’s valuation (2025e EV/S 13x-14x) has priced in expectations of strong scalable growth, for which we believe the still credible long-term growth story provides grounds. In the big picture, the company's reactor business is still moving in the right direction, which lays the foundation for strong earnings growth in the coming years. Should this materialize, the share’s valuation (2028e-2029e EV/EBIT 12x-5x) would become very attractive. However, this year's weakening revenue has created a crack in the growth story, which is also reflected in the sharply declined share price. Through scenarios modeling growth and profitability at different rates, we have estimated a wide value range of some EUR 5-20 for Canatu, which partly reflects the risks and opportunities associated with the company.