Merus Power H1'25: Story progresses one step at a time

Translation: Original published in Finnish on 8/21/2025 at 8:30 pm EEST.

The beginning of the year for Merus Power was characterized by high production volumes, but the full-year guidance remained unchanged. The gross margin development did not meet our expectations, but fixed costs scaled well even with high production volumes. The company continues to focus on improving production efficiency and expanding its customer base, including into new markets, so that growth is not solely dependent on domestic demand for electricity storage. Visibility into a significant improvement in profitability remains uncertain, against which the valuation is high. We reiterate our Reduce recommendation and raise our target price to EUR 5.0 (was EUR 4.8). 

Higher production volumes than expected in H1

The beginning of the year was a period of strong production volume growth for Merus Power. We believe this was particularly influenced by the revenue recognition of large electricity storage deliveries. Revenue was 25 MEUR, growing by as much as 274%, and also exceeded our estimate by 10 MEUR. High production volumes and the order book turning into revenue also lifted the bottom line significantly above our forecasts. EBITDA was 0.3 MEUR (we estimated -1.8 MEUR) and net profit was -1.2 MEUR (we estimated -2.9 MEUR). Gross margin of 32% was clearly lower than our expectations, partly due to the revenue distribution being weighted towards energy storage. However, fixed costs grew relatively moderately, which demonstrated the company's ability to scale operations and strengthen profitability as the business grows. The faster-than-expected revenue recognition of deliveries, on the other hand, negatively impacted the H1-end order backlog, which stood at 29.3 MEUR (Inderes: 39 MEUR). New orders decreased by 34% year-on-year, as the comparison period included large energy storage orders delivered in the H1 of this year. Operating cash flow was -0.4 MEUR, which was affected by, among other things, higher-than-expected financing costs. The significant increase in investments in H1 was mainly due to the capitalization of an energy storage system built for the company's own R&D and revenue-generating use as a fixed asset.

Current year outlook unchanged, continued growth requires acceleration of order intake in late 2025

Merus Power reiterated its guidance for 2025, according to which revenue will grow strongly from 2024 and EBITDA will be 1-3 MEUR. Our revenue forecast increased by 3% (2025e growth: 28%), but the EBITDA forecast remained unchanged at 2.0 MEUR due to a lower-than-expected margin level. The decreased order book level (-37% y/y) slightly increases uncertainty regarding continued growth in 2026. However, we interpreted the company as being quite confident in the energy storage market and the order outlook for the rest of the year. We made minor downward revisions (4% and 3%) to our 2026 and 2027 revenue estimates. In addition, we lowered our margin assumptions, which had a 15% and 10% negative impact on the 2026-27 EBITDA estimates. The significant earnings growth projected for the coming years is based on the assumption of, among other things, an improvement in the margin level of the energy storage business through process efficiencies in a young organization.

The story progresses, but we find the valuation tight

As our forecasts materialize, the EV/EBIT valuation multiples would decrease to 31x and 17x in 2026-27 (EV/EBITDA: 14x and 10x). In our view, the current valuation level is still relatively expensive, considering the uncertainty related to profitability development and international competitiveness. We would like to see more evidence from the company of systematic profitability improvement and, on the other hand, profitable expansion of the energy storage business into new countries and segments outside Finland. If the company could demonstrate that its energy storage solutions are competitive and profitable in international markets (so far, one order from Poland), there could be upside potential in the stock, as the target market is growing rapidly, supported by the energy system transition. While the market is expected to grow in the long term, investment-driven demand may fluctuate occasionally (especially in a single country), which increases business risk.