Translation: Original published in Finnish on 10/3/2024 at 7:00 pm EEST.

Kempower has rapidly grown its market share in the fast charger market in recent years. However, the current year's result is turning into a loss, and competition has intensified, partly due to a temporary weakening of market demand. The key to the investment story would be for Kempower to be able to strengthen its market position in the coming years without a significant decline in margins. For the time being, the uncertainty of the outlook and the difficulty of predicting the competitive situation weigh on the risk/reward ratio. We reiterate our Reduce recommendation and the target price of EUR 10. 

A global and distinctive provider of fast charging solutions

Kempower is a provider of fast charging equipment and software for electric vehicles, with products suitable for both public charging points for passenger vehicles and for charging commercial and utility vehicles. The company's satellite-based system stands out from the competition and its margins are among the best in the industry. The majority of the company's revenue to date have been generated in Europe (H1'24: 84%), where it has cost-effective and large-scale production centralized in Lahti, Finland. Sales in the US are on track for growth with the opening of a local plant in late 2023, and Kempower is also exploring growth opportunities in other regions. The company has recently added many new customers, and we believe that developing sales processes and strengthening distribution will be key strategic priorities for the company in the coming years.

We expect the weakness in market demand in 2024 to be temporary

Kempower's earnings will be negative in 2024, as significant growth investments combined with sluggish demand have weighed on profitability. We expect growth to accelerate in 2025, driven by factors such as lower customer inventories, stricter emission limits for car sales, and the introduction of new, cheaper electric car models. Kempower's 2023 CMD estimate of 14 BNEUR for the market size in 2030 (2023: around 2.5 BNEUR) is based in particular on the electrification of heavy-duty transport, which will be concentrated towards the end of the decade and for which visibility is still limited despite the positive trend. If growth is realized, profitability would also increase significantly owing to the operating leverage. The temporary overcapacity in the fast charger industry is likely to put pressure on selling prices in the coming years, which could lead to increased competition and lower margins. We have made no major changes to our estimates.

Medium-term upside is not attractive enough given the low visibility

We focus on a medium-term earnings-based valuation, which could turn supportive if the market recovers and Kempower's market share remains stable or increases. EV/EBIT multiples for 2026-27 fall to 16x and 12x, respectively, if our forecast of 30% annual growth (2025-26) materializes and the EBIT margin rises to 9-10% in 2026-27. Even these valuation multiples do not, in our view, offer sufficient upside potential without the investor placing significant weight on earnings growth potential in later years. We still see some risk to this year's guidance, as the revenue guidance would require orders to pick up in early Q3 for orders to impact 2024 revenue. Therefore, we consider the risk/reward ratio to be inadequate. If our near-term forecasts materialize and visibility on the earnings turnaround improves, we believe that more long-term value creation potential could be priced into the stock and the risk/reward could become more attractive. Forecasting the industry's long-term competitive position and profitability levels is very difficult, which limits our risk appetite, although we expect the market's structural growth prospects to remain strong.