Kempower Q4'24: Difficult start to the year, but signs of a turnaround visible

Translation: Original published in Finnish on 2/13/2025 at 7:30 am EET.

The normalization of order intake and strong electric vehicle sales in January are early signs that the DC charging market will return to long-term trend growth by H2’2025. The first part of the year will continue to be difficult due to a weak order book. Evidence of a recovery in the demand outlook strengthens the risk/reward ratio and we raise our recommendation to Accumulate (was Reduce) and our target price to EUR 13.0 (was EUR 9.5).

Order intake slightly stronger than expected

The main feature of the Q4 figures was the normalization of order intake (68 MEUR, +2% y/y) after a weak Q1-Q3. Revenue were also slightly better than expected, although down 13% year-on-year. High customer inventory levels continue to impact demand in Europe. In Q4, North American revenue continued to grow strongly (37% y/y) and already accounted for 10% of Kempower's top line and 15% of its order intake. In line with guidance and expectations, adjusted EBIT amounted to 0.8 MEUR, turning positive after three loss-making quarters, although lower than in the previous year (Q4'23: 5.5 MEUR). Gross margin of 49.6% was close to expectations and remained at a strong level, despite a year-on-year decline from the record high comparison period (Q4'23: 53.1%). Cash flow from operating activities was clearly positive (12.4 MEUR, Q4'23: 0.7 MEUR) and the year-end net cash position of 24 MEUR was slightly above our forecast (22 MEUR).

Market could return to trend growth in second half of 2025

Kempower's new 2025 guidance estimates revenue growth of 10-30%, a step down from our and consensus's previous expectations (24% and 30%, respectively). We have lowered our 2025-26 revenue forecasts by only 1-2%, supported by good order intake, and we believe the company has the potential to reach the upper end of the guidance range (our forecast of 22%). On the earnings day, the January sales figures for electric cars were also released, with a significant improvement in Europe (21% y/y growth in January 2024: -1%). Orders in a single quarter and sales in a single month are not sure signs of a broader turnaround. However, these fit well into the major market trends. A major turnaround in sales of fully electric passenger cars is underway, supported by stricter EU emission limits and the introduction of cheaper electric vehicles. Kempower's Q1 will be sluggish due to a weak order book (-14% y/y) and the company guided for Q1 EBIT to still be in the red. However, steadily declining customer inventories and a nascent market turnaround provide a good foundation for the DC charger market to return to strong trend growth. According to a recent estimate commissioned by Kempower, the DC charger market is expected to continue growing at 30% p.a. until 2030, supported by the continued electrification of commercial vehicles, in addition to the factors mentioned above. We slightly raised our long-term growth assumptions, supported by signs of a market turnaround.

Turning to Accumulate, but valuation risk is still high

Kempower's earnings-based valuation is high relative to its earnings in the coming years, which we forecast to remain moderate in 2025-26 (EBIT: -2 MEUR and 25 MEUR). 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 15x and 9x). Based on our current fair estimate of the EV/EBIT multiple at 15x, the discounted value of the stock would be EUR 13.3 in 2028 in our base case (2025-28 average growth 24% p.a., 2028e EBIT: 11.3%). Our DCF model with a terminal EBIT margin of 11% gives a fair value of EUR 14.1 per share. The difficulty in forecasting growth and the company's high operating leverage increase valuation risk, but we see the risk/reward ratio turning positive given the recent signs of a market turnaround and Kempower's relatively strong market position.