Kempower Q2'25: Share price reflects high expectations

Translation: Original published in Finnish on 7/25/2025 at 8:18 am EEST.

Kempower's Q2 report was somewhat more positive than expected, and the strong order intake supports the anticipated upturn in revenue growth in the second half of the year. The gross margin also strengthened, alleviating uncertainty about the impact of price competition on profitability. On the other hand, higher-than-expected fixed costs limit short-term profitability. We raised our target price to EUR 15.0 (previously EUR 12.5), as long-term earnings estimates improved and near-term guidance risk decreased. However, the recent rise in the share price has tightened the valuation multiples even further, which is why we are lowering our recommendation to Reduce (previously Accumulate).

Q2 figures support upward growth outlook

The key figures in the Q2 report were mostly slightly stronger than consensus expectations. Order intake grew by 37% year-on-year, exceeding consensus by 13%, particularly due to successful new customer acquisitions and distribution expansion into new markets, such as continental Europe and North America. Growth was quite broad-based, but there were also some larger orders, the timing of which may cause volatility between quarters. Revenue grew by 9% and adj. EBIT improved significantly from the comparison period to -1.7 MEUR (Q2’24: -8.5 MEUR). The improvement in profitability was driven by a strong gross margin (2.4 pp above consensus) on the one hand and temporary profitability challenges in the comparison period related to component write-downs, among other things, on the other hand. However, Q2 delivery volumes fell slightly short of our forecast, while fixed costs rose slightly more than we expected, primarily due to personnel expenses. Cash flow from operating activities turned positive at 4.0 MEUR in Q2 (Q2'24: -16 MEUR), and net cash excluding lease liabilities was 44 MEUR (Q2’24: 59 MEUR).

New customer acquisition remains a key growth driver for the time being

Kempower's revenue grew by only 6% year-on-year in H1, which means that the company's reiterated growth guidance (2025: 10-30%) points to a strong turnaround in growth in H2. This growth also has a solid foundation, thanks to strong order growth (35%) in H1. We forecast 28% revenue growth in H2 and estimate that the growth trajectory will remain at that level throughout 2026. For now, we believe the increase in order intake mainly reflects the successful acquisition of new customers, but a clearer recovery in market demand and increased activity among long-term customers are yet to come. Our short-term earnings forecasts declined slightly due to factors such as growth in fixed costs, but our EBIT forecasts for 2027 rose by 9% thanks to an improved margin outlook.

Valuation tight and profitability scale-up timing further out in the future

Kempower's valuation is high relative to its earnings in the coming years, which we forecast to remain low in 2025-26. Predicting the timing of profitability scaling up is challenging because the company expects growth investments to weigh on the profitability outlook in the coming years. Recent order development, together with key customer wins, has of course strengthened our view of the company's competitiveness and supports growth expectations for the coming years. However, the sharp rise in the share price also pushes up medium-term valuation multiples (EV/EBIT 2027-28e: 21x and 14x), which, in our view, leaves little room for further upside without a significant positive turnaround in market demand. With the 15x EV/EBIT multiple we consider fair in 2028, the discounted present value of the stock would be EUR 14.7 in our base case (2025-28 average growth 24% p.a., 2028e EBIT: 12%). Our DCF model with a terminal EBIT margin of 11% and WACC of 9.1% gives a fair value of EUR 15.0 per share. We lowered the WACC by 0.2 pp as recent commercial successes reduced business risk.