Merus Power Q4'25: Rapid growth, profitability starting to awaken

Translation: Original published in Finnish on 2/6/2026 at 8:48 am EET.

Merus Power's H2 report was in line with expectations for key income statement items due to strong revenue, although the gross margin was lower than we expected. Production has been made efficient, and large energy storage systems are already being routinely delivered, at least to the domestic market in Finland. The stock's valuation relies on long-term earnings growth, which increases the valuation risk. However, we believe that if the nascent earnings turnaround and internationalization trend continue, the expected return could become attractive. We therefore raise our recommendation to Accumulate (from Reduce) and our target price to EUR 4.7 (from EUR 4.5).

Progress in earnings turnaround, yet margin level is tight

The H2 report was mixed, as revenue significantly exceeded our expectations (42%), but relative profitability was a slight disappointment. H2 revenue was on par with the strong comparison period (we expected a decline), as revenue from percentage of completion energy storage projects exceeded expectations. On the other hand, this meant a lower starting level for the order book for 2026. H2 EBITDA was 1.5 MEUR (we estimated 1.6 MEUR) and improved significantly at the full-year level (+2.6 MEUR y/y). EBIT was 0.8 MEUR (0.3 MEUR for the full year) and thus in line with our estimate. However, the projected result was achieved with higher-than-expected revenue, as the gross margin remained below forecasts. Fixed costs and financial expenses also exceeded our estimates, which is why H2 net profit was weaker than expected at 0.1 MEUR. The significant commitment of working capital strained cash flow relative to our forecasts. Net debt at the end of the period was 2.9 MEUR (we estimated 0.8 MEUR).

Continuing growth requires new orders

Merus Power's guidance is that revenue will grow and EBITDA will be 2-4 MEUR in 2026. The bar for growth is set high after a strong year, considering the lower order book of 24.5 MEUR (-18% y/y) at the turn of the year. However, the company received a 13 MEUR energy storage order in early 2026 and still sees the market as attractive. We now forecast 2026 revenue to be 58 MEUR (+6%), which requires an additional 13 MEUR revenue impact from potential new energy storage orders. We expect EBITDA to strengthen to 2.8 MEUR. We expect profitability to continue its upward trend with improving scale and efficiency, even though price competition in the market may gradually intensify due to factors such as falling battery prices. Our 2027 revenue forecast increased, but earnings estimates remained unchanged due to a lower margin profile. The earnings growth forecasts for the coming years no longer rely on a significant increase in margin levels, but mainly on revenue growth and the scalability of fixed costs.

Company's profile has risen due to gradual turnaround in earnings and internationalization

If our forecasts materialize, EV/EBIT valuation multiples would fall to 29x, 14x, and 10x in 2026-28, respectively. The short-term valuation is high, but we estimate that the company can continue the earnings turnaround, for which reasonable concrete evidence was obtained for 2025. With the EBIT margin rising to the higher end of the industry (EBIT 2028e: 4.6%), the valuation would already be very attractive, considering the market's double-digit growth rate. The company's competitiveness in energy storage has been good in Finland, at least in terms of market share, and if it could gain a foothold abroad, the company's profile could become more attractive. Although the market is expected to grow in the long term, investment-driven demand may fluctuate occasionally (especially in individual countries), which increases business risk. At the same time, forecasting the industry's long-term profitability level is challenging due to the competitive dynamics being in a relatively early stage of development.