High Order Concentration And Execution Risk Will Erode Margins

Key Takeaways

• Profitability is threatened by lower-margin project work, heavy customer concentration, and rising execution risks from complex multibillion-euro investments and operations.
  
• Intensifying competition, supply chain fragmentation, and commodity price volatility risk eroding margins and long-term returns, especially if cost increases cannot be passed to customers.
  
• Strong demand for grid modernization and renewables, combined with strategic expansion and acquisitions, underpins long-term growth, margin improvement, and market share gains.

Catalysts

Designs, manufactures, and installs low, medium, and high voltage power cable solutions in Denmark.

• Increasing reliance on variation orders and subcontracted third-party work in the Solutions business is inflating near-term revenue figures, but these orders carry substantially lower margins and offer little sustained profitability, leading to a structural decline in group EBITDA margin and muted earnings quality through the project cycle.
  
• Over 90 percent of the current high-voltage order backlog is tied to European transmission operators, heightening geographic and customer concentration risk; any reduction or delay in government or TSO capex-whether due to regulatory shifts, grid permitting complications, or economic contraction-could sharply curtail backlog conversion and suppress revenue growth for years.
  
• Execution risk is mounting as NKT juggles simultaneous multi-billion-euro capex programs, complex project backlogs, and ramp-ups across new facilities and vessels; even minor project overruns, cost inflation, or operational setbacks would erode net margins and increase volatility at precisely the point of peak deployed capital.
  
• Intensifying competition from global cable manufacturers, especially from China and South Korea, threatens to undercut pricing in both medium-voltage and high-voltage markets, leading to price wars, lower contract values, and compressing gross and operating margins over the next decade.
  
• Fragmented global supply chains and persistent raw materials volatility for key inputs such as copper and aluminum risk driving up input costs unpredictably; failure to consistently pass these increases onto customers or hedge exposure would structurally squeeze profitability and depress long-term return on capital employed.

NKT Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on NKT compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming NKT's revenue will decrease by 3.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.0% today to 8.0% in 3 years time.
• The bearish analysts expect earnings to reach €256.2 million (and earnings per share of €4.62) by about August 2028, up from €213.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.6x on those 2028 earnings, down from 20.0x today. This future PE is lower than the current PE for the GB Electrical industry at 20.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.7%, as per the Simply Wall St company report.

NKT Future Earnings Per Share Growth

Risks

• The robust multi-year order backlog of €10.1 billion, bolstered by over €3.5 billion in additional customer booking commitments expected to convert to firm orders in the coming years, provides long-term revenue visibility and supports sustained earnings through at least the end of the decade.
  
• Accelerating grid modernization, electrification, and renewable energy deployment across Europe-including persistent upgrades for offshore wind and power distribution projects-are driving healthy demand for NKT's core high-voltage and medium-voltage cable offerings, supporting revenue growth and margin potential.
  
• NKT's large-scale capacity expansions, including new high-voltage factories and cable-laying vessels expected to be operational from 2027, are set to deliver higher production volumes and improved operating leverage, which could lift net margins as fixed costs are absorbed and more of the backlog transitions to newer, higher-margin contracts.
  
• The company's proven ability to execute and integrate strategic acquisitions such as Solidal, combined with consolidation opportunities in the fragmented medium-voltage market, positions NKT to strengthen market share and enhance its earnings base over time.
  
• Industry tailwinds such as European energy security imperatives, underpinned by regulatory and government-backed investments, are expected to drive a persistently strong project pipeline for NKT's products and services, further underpinning long-term top-line and bottom-line growth.

Valuation

• The assumed bearish price target for NKT is DKK403.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of NKT's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of DKK843.0, and the most bearish reporting a price target of just DKK403.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €3.2 billion, earnings will come to €256.2 million, and it would be trading on a PE ratio of 13.6x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of DKK595.0, the bearish analyst price target of DKK403.0 is 47.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.