Translation: Original published in Finnish on 06/08/2026 at 08:12 am EEST

Auroora's compounder story is in its early stages, but the company's playbook for achieving ambitious targets is in order. The current focus is on strategy execution and how to make current capital generate returns through acquisitions. The stock's short-term valuation has increased after the post-IPO share price rally, but the strong long-term earnings growth outlook effectively digests the multiples. We initiate coverage of Auroora with a EUR 8.0 target price and an Accumulate recommendation.

The company consists of three business areas

With 2025 pro forma revenue, Electrification and Automation is clearly Auroora's largest business segment (138 MEUR). Industrial Products and Services (74 MEUR), in turn, is the group's most profitable segment with an EBITA margin of over 10%. Clean Water and Environmental Technology (21 MEUR) is the smallest segment and is undergoing a profitability turnaround. The Electrification and Automation segment is backed by strong demand drivers, and we estimate that it will drive Auroora's overall organic growth rate to a strong level of around 6% in the coming years. Acquisitions, alongside organic growth, are a key part of the strategy in all segments, and in 2024-2025, most of them have been seen in the Industrial Products and Services segment.

Good prerequisites for successful acquisitions

The structure of Auroora's target market is favorable for the company's strategy: the market is large, fragmented, and its ownership structure is under pressure for change (retirements). We consider Auroora's approach competitive: the company offers continuity in terms of brand, management, and operating culture, which is a significant factor for many founders when choosing a buyer.

We believe the current market creates good opportunities for the company to be active among sellers, leveraging its strengthened balance sheet and brand awareness from the IPO. We find the company's acquisition strategy and the quality criteria applied to targets to be sound, with a focus on capital-light targets that generate strong cash flow, high EBITA margins, and revenues of 1-20 MEUR. Historically moderate acquisition prices also offer a good safety margin (EV/EBITA ~5x) in acquisitions. The company's return on invested capital (LTM) of 14.5% is already close to the targeted 15%.

The story is just beginning

Following the IPO, the current net debt/EBITDA (LTM) ratio is 0.7x (target below 2.0x). According to our calculations, with the current earnings level, there is approximately 10 MEUR of free cash flow annually available for new acquisitions, and the balance sheet has about 40 MEUR of excess capital for acquisitions. If successfully allocated, these would create a beautiful compound interest effect. Auroora's revenue target is 400 MEUR and its adjusted EBITA margin target is over 10% by the end of 2028. Our current 2028 estimates are 284 MEUR in revenue and a 7.5% EBITA margin, but these do not include unannounced acquisitions. If future acquisitions are successful, the targets are achievable. The key risks are also related to the success of acquisitions and finding suitable targets, and the company's historical track record as a compounder is still relatively short.

Valuation has increased, but we are looking at the long term

Based on our estimates for 2026-2027, the adjusted P/E ratios are 17x and 15x, and the corresponding EV/EBITDA multiples, which account for balance sheet leverage, are 9.4x and 8x. At the 2026e earnings level, the multiples are at the upper end of our acceptable range. Auroora is valued at a 30% discount compared to a peer group of compounders, which we believe is a neutral level. The value of our cash flow model is alos at EUR 8.0. From a longer-term perspective, we see strong potential in the stock, and our organic earnings growth estimate of 14% per year already effectively digests the multiples. On top of this, investors also have an M&A option with good value creation potential.