Solar Foods H2'24: Growth seems to take longer than expected

Translation: Original published in Finnish on 02/28/2025 at 09:18 am EET

Solar Foods’ H2 figures generally missed our estimates, with revenue declining from H1 levels and the cost structure being heavier than expected. Driven by weaker than expected figures and more subdued sales news flow, we cut our forecasts, especially in the short term. With the current limited visibility into funding sources for the investments required during the strategy period, the risks associated with the stock, considering the financial risk, outweigh the longer-term potential. We reiterate our Reduce recommendation for Solar Foods and revise our target price to EUR 3.3 (was EUR 5.0).

H2 cost structure exceeded our estimates

Solar Foods achieved several milestones during the review period to advance the commercialization of Solein. Despite the launch in the US, deliveries to the country did not yet start during the review period and revenue was a couple of thousands, falling short of our expectations and the H1 level. With the start of Factory 02 production in April, we expected significant sales growth from Singapore, but according to the company, the country's role will remain a limited-volume demonstration market as growth investments focus on the US. The H2 EBIT of -4.6 MEUR was below our -2.3 MEUR forecast as the cost structure grew faster and the company capitalized a smaller share of costs on the balance sheet than we expected. At the end of the period, net debt reached 6.2 MEUR, which was highlighted by the postponement of some grants to this year. At the current cost level, we expect the company to need new financing within the next year.

Commercialization has progressed slower than we expected

In connection with the report, we cut our revenue forecasts, especially for the short term, anticipating a slower entry into the US market for Solein, driven by limited sales pipeline visibility and weaker than expected H1 revenue.  At the same time, our cost estimates for the coming years increased, reflecting H2's cost structure. Solar Foods is balancing between the limited production capacity of Factory 01 and growth in the US, as a single larger customer could buy the entire production capacity for themselves. This would allow Solar Foods to achieve rapid growth, but the prerequisites for finding several partners for the upcoming Factory 02 investment would weaken. Ideally, the company would be able to sign several smaller contracts with large food manufacturers and, following successful pilot cooperation, commit them to invest in the new O2 factory in the form of pre-orders or other financing. However, in the short term, this leaves the validation of Solein's demand dependent on announced collaboration agreements rather than revenue and reduces the predictability of the growth trajectory.

Estimate changes and the increased required return depressed our view of the stock's fair value

Solar Foods' earnings being weighted towards the 2030s makes the stock's valuation very sensitive to estimate changes and changes in the required return. With these drivers, our fair value range has decreased to EUR 0.8-7. 5 (was EUR 1.2-10.6). Due to Solar Foods’ early development stage, news flow and the sentiment surrounding the stock will determine the share price development in the short term. From a news flow perspective, licensing agreements or food industry players committing to assisting Solar Foods in the 02 factory investment would be particularly valuable. In our view, the share price decline has increased the company's attractiveness as an acquisition target, but from an investor's perspective, it is difficult to rely on this driver due to the lack of solid valuation anchors and the company's financial risk. Due to the lack of these supporting points, the market may further punish the stock if evidence of commercialization progress remains elusive.