Translation: Original published in Finnish on 10/1/2026 at 8:31 am EEST.

Merus Power introduced an ambitious new strategy. We see the company as having a favorable earnings outlook, which is supported by market growth, expansion, and operational scaling. Despite its expansion aimed at diversification, the company remains significantly dependent on the Finnish investment cycle for energy storage. While growth may indeed meet targets in a strong market, we consider achieving the profitability target to be unrealistic – at least on a sustainable basis. We slightly raised our forecasts as the outlook for electricity demand strengthened, and our current profitability assumptions for the company are among the best in this low-margin industry. However, the risk/reward ratio has weakened following the recent rise in the share price, which is why we are lowering our recommendation to Reduce (was Accumulate). The target price increased to EUR 6.5 (was EUR 5.5), supported by estimate changes.

Growth through both market and expansion

Merus Power updated its strategy and set new financial targets for 2027-30. The content of the strategy was largely in line with our expectations. The company is seeking growth driven by energy storage, partly for diversification reasons, especially in new markets in Central and Northern Europe, although the demand picture in Finland also remains very strong and conducive to growth. The revenue target of 160 MEUR by 2030 corresponds to an annual growth rate of around 28% relative to our 2026 estimate, which exceeds the growth rate of the European energy storage market (according to the company, 21%/year). In addition to growth driven by energy storage, the company plans to increase its investments in power quality solutions once again and is considering expanding its focus in that segment to include electricity grid applications, which are larger in scale than industrial solutions, for example. Data centers also open up opportunities for both segments. Overall, the company anticipates a 34% annual growth rate in its target market by 2030, including both market growth and the company's expansion into new target areas.

Profitability target remains well above our forecast

The company aims to continue the profitability turnaround seen in recent years (EBITDA 2024: -2.2% -> 2026e: 5.4%) and is targeting an EBITDA margin of as much as 12% by 2030. In our view, the company seemed confident about favorable profitability trend, although we consider the target level extremely challenging due to low market margins, given that batteries account for a significant portion of energy storage revenue. The need for investments in personnel and production capacity, which temporarily impact profitability, is significantly reduced compared to the previous 2021-2026 strategy period, so there is upside potential in profitability through scaling the business. The earnings turnaround also aims to ensure that the working capital necessitated by growth can be financed by internal cash flow or debt in the future.

Valuation has grown more demanding

We made minor upward revisions to our estimates driven by factors such as the recent increase in the outlook for electricity demand, which supports the outlook for investment in renewable energy, and consequently increases the demand for energy storage (2026-28e EBITDA increased by 2-4%). Our EBITDA forecast for 2030 is based on revenue of 105 MEUR (15% annual growth) and an EBITDA margin of 7.5%, which would make the business clearly value-creating (ROI 2027–30e: 14–20%). While we recognize the company's competitive advantages stemming from its electrical engineering expertise, we anticipate that achieving higher returns on capital than forecasted will be challenging in a competitive market. At elevated share price levels, the earnings-based valuation is tight (EV/EBIT 2026–27e: 38x and 21x), and it will not look attractive until the 2029–30 forecasts (12x and 10x). Therefore, under our current assumptions, we do not believe that the expected return adequately compensates for the risks associated with the challenging predictability of the business. Dependence on the investment cycles of the Finnish energy storage market keeps the risk level elevated, although the company's strategy aims wisely to broaden the revenue base and diversify demand.