Betolar Q4'24: Growth drivers did not translate into growth numbers

Translation: Original published in Finnish on 2/6/2025 at 7:15 am EET.

The order intake and other indicators of the results of the commercialization efforts in Betolar's financial statements were below our expectations, which led us to lower our growth forecasts for the next few years. The implemented savings measures have been more effective than we expected, so that capital consumption will slow down significantly in the coming years. The risk associated with achieving a commercial breakthrough, combined with a neutral valuation based on long-term potential, keeps the risk/reward ratio inadequate in our view. In line with the lowered forecasts, we lower our target price for Betolar to EUR 0.9 and reiterate our Reduce recommendation.

Savings measures were stronger than we expected

Revenue for H2'24 was 0.5 MEUR, below our forecast of 0.7 MEUR. The EBITDA loss, however, was lower than forecast due to effective savings measures. As a result, the company has entered the 2025 financial year with a lower than expected cost structure, which will significantly slow down the capital consumption compared to previous financial years. Otherwise, there were no surprises in the financing situation, so we continue to expect the current financing to be sufficient until 2027. Order intake in H2 stood at 0.5 MEUR, which does not indicate a significant acceleration of growth in early 2025.

Financial targets to be updated

On the whole, our previous forecasts assumed significant progress in the commercialization of Betolar in 2025, but the order intake of around 1 MEUR in the financial year 2024 did not support our growth forecast. We have therefore significantly lowered our revenue forecasts for the coming years. However, we expect revenue to more than double to 1.8 MEUR, reflecting Betolar's buoyant news flow on various commercial initiatives. This is in line with the guidance given by Betolar in connection with the financial statements, where the company expects revenue to grow from the 2024 level. In the coming year, we expect revenue to come mainly from research service projects. At the EBITDA level, the forecast changes for the coming years remained small, reflecting a lower-than-expected actual cost structure and a lower level of growth investments.

The revision of the financial target made by the company in connection with the financial statements release was, in our view, necessary and quite expected, as the previous revenue target (FY 2026 50-100 MEUR) had inevitably slipped out of Betolar's reach. The company removed the 2026 revenue target, but left the long-term target and the positive cash flow from operating activities target for next year unchanged. We think it will be challenging for Betolar to achieve positive cash flow in 2026, and with the current cost structure, we estimate that in addition to revenue of around 7 MEUR, a strengthening of the gross margin from 2024 will be necessary.

Valuation relies on far-reaching potential

The 2025 and 2026 EV/S valuation ratios based on our forecasts for Betolar are 11x and 4x, which we consider high, considering the high risk level related to commercializing Betolar’s innovations. The value of the DCF model based on our long-term forecasts is at our target price. We also believe that the likelihood of short-term upward price drivers is low for the time being, until we see concrete signs of accelerating growth and progress in commercialization. Given our valuation methodology and the company's stage of development, the risk/reward ratio is not yet positive, and we are still waiting for the first signs of a commercial breakthrough.