Norgespris And Digital Platforms Will Shape Nordic Electrification

Key Takeaways

• Expanded digital platforms and in-house trading boost operational efficiency, market reach, and cost control, strengthening future profit margins and scalable growth opportunities.
  
• Diversification into bundled services and increasing customer growth fuel recurring revenues and earnings stability, securing the company's role in electrification trends.
  
• Earnings and revenue growth are threatened by credit losses, reduced volumes, a capital-light shift, contract churn, and regulatory uncertainty in core Nordic markets.

Catalysts

Engages in the purchase, sale, and portfolio management of electrical power to households, private and public companies, and municipalities in Norway, Sweden, and Finland.

• The approval and likely implementation of Norgespris is projected to drive up electricity consumption by as much as 10%, directly supporting future revenue growth given Elmera Group's continued key role as electricity retailer in Norway.
  
• Accelerating customer growth across all reporting segments, especially with strong organic gains in both the Consumer and Business units and successful price/margin management, enhances predictable cash flow and is likely to improve both net revenue and net margins over time.
  
• In-sourcing of the Power Trading function has resulted in higher consumption forecasting accuracy and enables active participation in intraday markets, which reduces balancing and procurement costs, thus supporting EBITDA and net profit margin improvements on a forward basis.
  
• Ongoing digital platform rollouts in Sweden and Finland are expected to centralize critical business functions and replicate Norway's operational success, positioning the company for scalable growth, cost efficiencies, and improved profit margins in the wider Nordics over the coming years.
  
• Large pipeline of signed Alliance deliveries and successful diversification into mobile/bundled services is set to increase recurring revenues and average revenue per customer, benefiting long-term earnings resilience and capitalizing on broader trends in electrification and digitalization.

Elmera Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Elmera Group's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.7% today to 3.3% in 3 years time.
• Analysts expect earnings to reach NOK 439.6 million (and earnings per share of NOK 3.51) by about September 2028, up from NOK 294.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting NOK514 million in earnings, and the most bearish expecting NOK266 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.3x on those 2028 earnings, down from 12.2x today. This future PE is lower than the current PE for the NO Electric Utilities industry at 12.8x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.16%, as per the Simply Wall St company report.

Elmera Group Future Earnings Per Share Growth

Risks

• Credit and hedging losses in the Nordic segment, particularly due to bankruptcies and deteriorating creditworthiness among Swedish SME customers (notably in HoReCa), have already negatively impacted earnings and may persist, increasing risk to revenue stability and net margins.
  
• Volumes sold declined year-over-year in both Consumer and Business segments, primarily from reduced average energy consumption, which may reflect broader secular trends toward energy efficiency or distributed generation, threatening long-term revenue growth.
  
• The transition to a more capital-light business model in the Alliance concept results in lower net revenue, even though it reduces finance costs, suggesting revenue growth could be constrained while the benefits to net margin may be slow to materialize.
  
• The business is still seeing a slow churn out of variable contracts and a lag between new spot contract growth and exiting fixed contracts in the Nordics, which delays significant volume and earnings growth, risking tepid revenue or flatlining earnings in key growth regions.
  
• Regulatory changes, such as the implementation of Norgespris and ongoing grid congestion issues highlighted by regional spot price volatility, introduce uncertainty regarding the company's ability to maintain pricing and margins, potentially compressing future earnings.

Valuation

• The analysts have a consensus price target of NOK34.667 for Elmera Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK41.0, and the most bearish reporting a price target of just NOK25.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK13.5 billion, earnings will come to NOK439.6 million, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 6.2%.
• Given the current share price of NOK32.8, the analyst price target of NOK34.67 is 5.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.