Meriaura Group Q3'24: Higher profitability would increase the value of growth

Translation: Original published in Finnish on 10/31/2024 at 8:80 pm EET.

In Q3, revenue grew in line with our expectations, but profitability lagged behind the comparison period. We expect growth to continue and the result to improve as well, but there is still a long way to go to achieve a turnaround in Renewable Energy. We reiterate our Reduce recommendation and our target price of EUR 0.03 (unchanged).

Earnings development softer than expected in Q3

Meriaura Group's third quarter revenue was 18.8 MEUR (we forecasted 19.5 MEUR), an increase of 20% year-on-year. Revenue developed in line with our expectations in both business areas, but remained slightly (4%) below the forecast. In Marine Logistics, revenue was stable (+1% y/y) and in Renewable Energy, revenue increased significantly due to the delivery of solar thermal projects and the acquisition of Rasol Ltd completed at the end of 2023. Despite the growth, profitability deteriorated against our expectations. EBITDA decreased in the seasonally weak quarter to 1.4 MEUR (Q3’23: 1.7 MEUR, estimate: 2.1 MEUR) and EBIT to 0.0 MEUR (Q3’23: 0.3 MEUR). The decline in the earnings level was partly due to the effects of the weak market conditions in Marine Logistics. In Renewable Energy, the significant increase in revenue did not significantly improve the earnings level, which suggests that the margin on projects delivered has been rather low. Comparable net profit was -0.4 MEUR and reported net profit -3.8 MEUR, affected by an impairment of 3.3 MEUR related to the sale of a minority stake in Marine Logistics to Meriaura Invest for a price below its balance sheet value at the beginning of July.

Near-term growth partly dependent on winning new solar thermal projects

Meriaura Group does not provide numerical guidance, but the company describes the outlook for Marine Logistics as reasonable and the outlook for Renewable Energy as at least reasonable. We lowered our 2025-26 EBIT forecasts by 15-18% following weaker-than-expected Q3 results in both units, but we still expect earnings to improve, supported in particular by revenue growth in Renewable Energy. For Q4 and 2025, we forecast moderate growth of 2% in Marine Logistics. New environmentally friendly Ecotrader vessels will enter service in 2026, which could boost growth, although we expect the investments to partly replace old cargo capacity that is being phased out. In Renewable Energy, we expect strong revenue growth (2025e: 33%), supported by the order book for solar thermal projects and good market demand. The projected growth for 2025 requires a further strengthening of the order book for solar thermal projects by around 4 MEUR by early 2025 at the latest.

Weaker profitability forecasts reflected in fair value determination

The equity story is increasingly linked to the potential earnings turnaround in Renewable Energy. The business has started to grow this year, but sustaining strong growth for several years will be challenging and, on the other hand, project margins have been low, at least so far, so we believe there is considerable uncertainty about the turnaround. The balance sheet may require further strengthening in the coming years, such as share issues or further sales of shares in Marine Logistics to the group's major shareholder. Our sum-of-the-parts valuation method now shows a value of EUR 0.030 per share, with Marine Logistics dominating for the time being. The large vessel investments in the coming years will contribute to cash flow pressure in the coming years, although they offer growth and differentiation potential in the long term. Progress in the Renewable Energy turnaround and faster-than-expected growth would be potential drivers that could turn the stock's risk/reward ratio in a better direction.