Nordic Grid Revenues Will Falter Under Renewables Pressure

Key Takeaways

• Growing consumer energy independence, coupled with regulatory and technological shifts, is undermining Elmera Group's traditional revenue streams and compromising its long-term profitability.
  
• High dividend payouts and lagging technology adoption are limiting the company's capacity to invest in modernization, heightening exposure to future financial and operational risks.
  
• Improved forecasting, cost control, and market consolidation may uplift long-term profitability, while regulatory changes and growing customer demand could further drive revenue and margin growth.

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 accelerating adoption of distributed energy resources such as rooftop solar and home batteries continues to undermine Elmera Group's long-term grid-based revenues, especially as regulatory support shifts towards empowering consumers to generate and store their own electricity, threatening the company's core business model and limiting sustained revenue growth.
  
• Intensifying regulatory pressures around decarbonization, as well as increasingly ambitious climate policies across the Nordic region, are leading to higher compliance costs and increasing the risk of stranded assets-trends that are expected to further tighten Elmera's margins and reduce flexibility in capital allocation for future growth initiatives.
  
• Elmera Group's legacy generation assets are at heightened risk of obsolescence as the energy mix transitions more rapidly towards renewables and distributed resources, driving up depreciation expenses, creating potential for further asset impairments, and eroding return on equity and overall profitability.
  
• Slower adoption of innovative grid and digital technologies compared to industry leaders is likely to impair Elmera's operational efficiency and customer retention, resulting in rising maintenance costs and compressed net margins over time as peer utilities gain an edge in both service delivery and cost control.
  
• The group's high dividend payout strategy, despite current earnings pressure, is expected to constrain future reinvestment in critical grid modernization and growth projects, which will limit long-term earnings per share growth and leave the company exposed to balance sheet risks amid sector-wide volatility.

Elmera Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Elmera Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Elmera Group's revenue will grow by 6.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 2.7% today to 2.1% in 3 years time.
• The bearish analysts expect earnings to reach NOK 279.3 million (and earnings per share of NOK 2.44) by about July 2028, down from NOK 304.4 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 12.1x on those 2028 earnings, which is the same as it is today today. This future PE is greater than the current PE for the NO Electric Utilities industry at 11.9x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.12%, as per the Simply Wall St company report.

Elmera Group Future Earnings Per Share Growth

Risks

• Elmera Group continues to grow its customer base in both the consumer and business segments, with accelerating trends and stable or increasing deliveries across multiple brands, which could support revenue and earnings growth despite occasional volume headwinds.
  
• The proposed Norgespris scheme, if implemented, is expected by industry experts to boost energy consumption by up to 10 percent, creating a potential tailwind for Elmera's net revenue in future periods.
  
• The successful in-sourcing and ramp-up of the power trading function is already improving consumption forecasting accuracy and enables participation in intraday markets, which can lower electricity procurement costs and support higher net margins.
  
• Management affirms a stable nominal operating expense outlook for both 2025 and 2026 while targeting a rebound in adjusted EBIT toward the upper end of their guided range by 2026, indicating confidence in future earnings stabilization or improvement.
  
• Increased M&A opportunities and ongoing consolidation in the Nordic utilities market provide potential for inorganic growth, scale efficiencies, and improved operational leverage, which could positively impact long-term profitability and Elmera's share price.

Valuation

• The assumed bearish price target for Elmera Group is NOK26.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Elmera Group'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 NOK39.0, and the most bearish reporting a price target of just NOK26.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be NOK13.3 billion, earnings will come to NOK279.3 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of NOK33.75, the bearish analyst price target of NOK26.0 is 29.8% lower.
  
• 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.