Translation: Original published in Finnish on 02/23/2026 at 08:26 am EET

Merus Power has grown strongly in recent years and gained a significant share of the energy storage market in Finland. The industry is competitive and has low margins, but as the scale increases, operational profitability also improves. We got a first taste of the profitability turnaround and the international growth of energy storage deliveries during 2025, and we expect these themes to strengthen in the coming years. Assessing long-term profitability is still difficult for now, which increases the valuation risk. As the EBIT margin continues to improve, the stock could have significant value creation potential in a market supported by megatrends. We reiterate our Accumulate recommendation and a target price of EUR 4.7.

Power electronics for growing market segments

Merus Power is a Finnish technology company founded in 2008 that designs and produces energy storage systems, power quality solutions, and related services. Both of the company's product segments are based on self-developed modular core technology and software, which enable easily customizable and high-performance solutions for various applications. Production is located at the new factory in Ylöjärvi and is relatively capital-light, consisting mainly of component assembly and testing. In addition, the company's deliveries may include significant purchased components, such as batteries and transformers.

Energy storage systems are the company's key growth segment and accounted for an estimated 77% of total revenue in 2025. The demand for energy storage is growing, particularly driven by renewable electricity generation. The demand for power quality solutions is also growing in the long term, supported by the increasing adoption of frequency-controlled pumps and investments in the steel industry. The company has delivered its power quality solutions to more than 70 countries through its extensive distribution network. The energy storage business is more local and the aim is to expand it from Finland to the rest of Europe through distribution partnerships.

Profitability and revenue diversification under observation

We expect the company to be able to continue its strong growth trajectory in the medium term (revenue growth 2026-30: 13% p.a.), although we estimate that 2026 growth will be in the single digits after last year's leap. So far, most of the estimated growth is based in Finland, but growth could be significantly stronger than our estimates if the company's energy storage systems prove competitive in international markets as well. The company received its first two energy storage orders from Poland in H2'25. Another key share price driver is profitability, which has been under pressure due to factory investments and rapid organizational growth before the 2025 turnaround (EBIT 0.6%, improved by 6 percentage points). Margins in energy storage are low (estimated at ~25%), and we believe the industry's sustainable long-term EBIT-% is around 5% (e.g., Wärtsilä targets 3-5% in the medium term).

Potential for value-creating growth

If the profitability turnaround and customer base expansion continue, the business could become highly value-creative (ROI 2028e: 16%). Fair earnings-based valuation multiples could be well above the stock market average in the long term, influenced by value creation in addition to a strong long-term growth outlook. Our fair estimate of around 15x EV/EBIT would imply an annual return of ~15% based on our 2028 estimates. The share's risk level is also clearly higher than average due to the poor predictability of profitability, dependence on individual large energy storage orders, and limited balance sheet flexibility. However, if the recent favorable development continues, it could decrease the aforementioned risks and enable significant upside potential in a favorable scenario.