Meriaura Group: Solar thermal project implementation starts despite the delay in the permit process

Translation: Original comment published in Finnish on 10/16/2023 at 7:05 am EEST

Meriaura Group announced on Friday that it will start the solar thermal delivery in Bad Rappenau, Germany. According to the original release, the project was conditional on a building permit but as the permit process is delayed, Meriaura has decided in cooperation with the customer to start delivering the project immediately. We already included the project in our forecasts earlier, so the Friday announcement does not affect our estimates.

Delivery starts by decision of the parties

In June, the company signed a contract with Bauer Holzenergie on the delivery of a turn-key solar thermal plant in Bad Rappenau, Germany worth around EUR 9 million. At the time, the delivery contract was conditional on obtaining a building permit. According to Meriaura’s release on Friday, the company and the customer have now decided to start the delivery immediately, even though the permit process has been delayed. One could, therefore, conclude that if the building permit has not been obtained yet, the parties have a strong expectation that the permit will be obtained.

We have predicted that the project will already contribute significantly to Q3’s results (3.0 MEUR revenue in the Renewable Energy segment). The delayed project start may delay the revenue, but we do not think this will have an impact on the fair value of the share. It is also possible that Meriaura records revenue from the project in Q3 based on degree of completion, e.g., based on preparation work or solar thermal collectors quickly deliverable from inventory.

Renewable Energy outlook on an upward trend but there is a long way to profitability

The record-breaking solar thermal project will help Renewable Energy to reach record revenue growth (our 2023 revenue estimate 6.6 MEUR, 2022: 3.8 MEUR). The business has so far been clearly loss-making (EBIT 2023e: -3.4 MEUR, 2022: -4.3 MEUR), as the scale of the business has not been sufficient and margin levels have been weak at times due to, .e.g, changes in material costs. We predict that achieving a zero result at EBIT level would require a revenue of some EUR 20 million in Renewable Energy, which, according to our current estimates, could materialize roughly in 2026. The growth we expect requires a continuous and growing flow of new, significant solar thermal projects. Megatrends support demand for renewable heat energy and the company has reported that customer interest has increased. However, forecasting growth is challenging, as individual large projects can have a big impact on it. Growth has developed unevenly in history and has at times been negative in the absence of projects. The share of Renewable Energy in Meriaura Group’s revenue is small so far (2022: 5%).