Translation: Original published in Finnish on 04/28/2025 at 08:02 am EEST

The start of the year was slightly weaker than the consensus estimates in terms of delivery volumes and earnings, but Kempower’s cost structure developed favorably. Kempower has also succeeded in its expansion strategy in new markets and maintained its margins relatively strong in a tighter competitive environment. The valuation risk is highish as the equity story relies on long-term earnings growth, but favorable development in competitiveness and the market raises the risk/reward ratio into positive territory. We reiterate our Accumulate recommendation with a EUR 12.5 target price (was EUR 13.0).

Delivery volumes in early 2025 remained low

Q1 revenue was low, in line with the company's profit warning, and amounted to 43.5 MEUR (up 2% y/y against a weak comparison period). The low revenue was due to, e.g., the low order backlog at the end of 2024 and the timing of deliveries. Revenue fell short of our and consensus estimates by 8-10 MEUR, so the EBIT (-7.3 MEUR) was also slightly weaker than expected (consensus -4.5 MEUR). However, the cost structure was relatively good, as the gross margin was 49.5% (consensus 48.7%) and personnel costs and other operating expenses decreased by 4 MEUR from the reference period. The earnings missed forecast relatively little compared to a higher miss in revenue.

Upward trend in order development expected towards the end of the year

Kempower received new orders worth EUR 59.4 MEUR in Q1, up 32% from the weak comparison period. Orders were in line with the consensus forecast, but below our forecast (64 MEUR). Based on the company's comments, the installation of chargers is still growing rapidly, but customers' high inventory levels continue to slow down the growth in delivery volumes of DC charger manufacturers. Order growth is still expected to pick up later in the year. Guidance for 2025 remained unchanged. The company expects revenue to grow by 10-30% and operative EBIT to improve significantly (2024: -26.4 MEUR). We slightly lowered our growth estimate based on the order figures. We now forecast 20% growth for 2025 (revenue: 268 MEUR) and around zero EBIT. Our revenue forecasts for 2025-27 decreased by 2-3%, but due to the improved cost structure, earnings forecasts remained almost unchanged (EBIT 2026-27e: 24-41 MEUR).

Competitiveness remains good and a market turnaround is on the horizon

The company highlighted strong order growth in North America and in several Central European markets. We believe growth outside the Nordics is a positive signal of the company's competitiveness and the progress of its expansion strategy. Given the recovered growth in EV registrations in the EU (Q1: +24% y/y) and the accelerated launch rate of new electric cars with better price/quality ratios, it is likely that the charger market will also pick up as customers' inventory levels normalize. Kempower's earnings-based valuation is high relative to its earnings in the coming years, which we forecast to remain low in 2025-26. The relatively stable development of the company's high gross margin, despite a tougher competitive environment, supports the expectation of high value creation in the medium term, which brings the earnings-based valuation multiples down to favorable levels in the 2027-28 forecasts (EV/EBIT 13x and 8x). With the 15x EV/EBIT multiple we consider fair, the discounted present value of the stock would be EUR 13.5 in 2028 in our base case (2025-28 average growth 23% p.a., 2028e EBIT: 11.7%). Our DCF model with a terminal EBIT margin of 11% and WACC of 9.3% gives a fair value of EUR 13.6 per share. The difficult predictability of competitive dynamics and the company's high operating leverage increase the valuation risk, but we see the risk/reward ratio as positive, considering recent signs of a market turnaround and Kempower's relatively well-developed market position so far.