Translation: Original published in Finnish on 12/13/2024 at 8:30 am EET.

We are discontinuing our coverage of Meriaura Group Plc as the company has terminated the research service agreement. Consequently, we will no longer be giving a target price (was 0.03 EUR) or a recommendation (was Reduce) for the stock. The group was formed at the end of 2022 through the merger of Savosolar Oyj, a provider of solar thermal solutions, and Meriaura Oy, a marine logistics company. A strengthened financial base has supported the growth of the solar thermal business, although there is still uncertainty about its potential profitability turnaround.

Merger with Meriaura has strengthened financial base for solar thermal business

We started coverage of the company in March 2023, and since then the company has undergone many changes as the role of Marine Logistics has become more prominent in both the name and the organizational structure. In 2023, Marine Logistics generated 95% of the revenue and, thanks to its stable profitability, offset the losses from the solar thermal business. The strategic objective behind the merger with Savosolar was to support the growth of renewable and low-emission businesses. We believe that this has also been achieved to some extent, as the Renewable Energy unit, including the solar thermal business and the subsequently acquired solar power solutions provider Rasol Ltd, has benefited significantly from the stronger balance sheet and financial base. At the same time, Meriaura Group has sold about a fifth of its Marine Logistics business to Meriaura Invest, the group's major shareholder, in exchange for funding Renewable Energy. As a result, the company's equity story is increasingly dependent on the earnings turnaround of the Renewable Energy unit.

Stable profitability in Marine Logistics, turnaround uncertain in Renewable Energy

Revenue from the Renewable Energy unit has increased in 2023-24, partly supported by a stronger financial position and favorable market demand, but we see the profitability turnaround as still uncertain due to the low gross margin and significant fixed costs. Marine Logistics, which generates most of the group's revenue, is by contrast a profitable business with a decent return on capital. Significant investments in a new, lower-emission fleet will be made in 2024-26, which could strengthen the competitiveness of the business in the future but will also weigh on the company's balance sheet in the coming years.

We are discontinuing coverage

Meriaura Group's earnings-based valuation multiples are heavily impacted by the profitability of its Renewable Energy unit, which has been negative to date. In our view, investors should focus on the growth and profitability trends of the company's Renewable Energy unit and try to assess the likelihood of an earnings turnaround. The success of growth investments in Marine Logistics and demand cycles are also key drivers for the share price. Our research coverage of Meriaura Group has been based on an equity research service agreement between Inderes and Meriaura Group. Unfortunately, we will no longer provide research coverage to our investor community and owners of Meriaura Group as the company has terminated the agreement. We recommend that investors follow Meriaura’s reporting and news feed. All of our previously published research on Meriaura Group continues to be available in our service.