Meriaura Group: Part of Marine Logistics sold to major shareholder

On Tuesday, the Meriaura Group completed the ownership restructuring it announced in the spring, whereby about one-fifth of the group's most profitable unit, Marine Logistics, will be sold to Meriaura Group's largest shareholder. We believe there are sound reasons for the transaction - primarily to strengthen the balance sheet and enable future balance sheet arrangements. However, we consider the transaction price to be low. With the transaction, Meriaura Group's share story will increasingly depend on the performance of its Renewable Energy business, which has limited visibility for the time being. We reiterate our Reduce recommendation and the target price of EUR 0.04.

Related party transaction strengthens balance sheet and enables Meriaura to expand its ownership base

Meriaura Group's largest shareholder Meriaura Invest (62% stake) has provided significant financing to Meriaura Group's subsidiary Meriaura Energy (formerly Savosolar) in 2023-24, enabling Meriaura Energy to implement the largest solar thermal project in its history in Bad Rappenau, Germany. In order to strengthen its balance sheet, Meriaura Group sold to Meriaura Invest a minority stake in Meriaura Oy, another subsidiary of the Group, which forms the Marine Logistics unit. The transaction settled a 4.4 MEUR loan receivable with interest from Meriaura Energy, a member of the group, to Meriaura Invest. The arrangement also expands the scope for future ownership arrangements to support the growth of Meriaura Group (e.g. share issue). Meriaura Invest must hold a sufficient stake in Meriaura Oy to meet the ownership permanence requirement of the ship financing agreements signed in the spring. Direct ownership of Meriaura Oy supports the ownership permanence and may allow Meriaura Invest to reduce its share in Meriaura Group.

The valuation of the transaction is low on both P/E and P/B multiples

Meriaura Group sells 20.6% of the shares in Meriaura Oy to Meriaura Invest for 4.6 MEUR. The purchase price values the total equity of Meriaura Oy at 22.1 MEUR, which corresponds to a P/E ratio of 5.3x at 2023 actual earnings. We believe that this P/E ratio can be considered low, as we estimate that the earnings level in 2023 corresponds to the sustainable profitability of the business, which Meriaura Oy should also achieve approximately in 2024-25. We also estimate the balance sheet valuation level corresponding to the purchase price to be low (P/B 2023: 0.6x) and well below the group's current market-based valuation level (P/B 1.0x 2024e). The transaction has no impact on reported revenue or EBIT as the minority interest is only recognized in net income. As a result of the transaction, our net income forecasts for 2025 and 2026 have been reduced by 32% and 22%, respectively, from their low absolute starting levels. Meriaura Group has the right to reverse the transaction during 2024.

Investment story increasingly dependent on the Renewable Energy turnaround

The reduction of the Meriaura Group's stake in Meriaura Oy, a company with strong earnings performance, means that the stock's story is even more closely linked to Renewable Energy. We do not see a profitability turnaround in Renewable Energy in the next few years. Growth may require further balance sheet strengthening measures in the coming years, which will contribute to increased uncertainty. Our sum-of-the-parts valuation method now indicates a share value of EUR 0.037 per share. The SOTP value decreased due to the low transaction price for the sale of the minority stake in Marine Logistics and the fact that we now already include the net debt at the end of 2024e, which is impacted by increasing vessel investments. Progress in the Renewable Energy profitability improvement and faster-than-expected growth would be potential drivers that could turn the risk/return ratio in a better direction.