Renewable Power Demand And PPAs Will Support Long-Term Earnings Expansion Here

Catalysts

About Eolus Aktiebolag

Eolus develops, finances and divests utility scale onshore and offshore wind, solar PV and battery energy storage projects across several international markets.

What are the underlying business or industry changes driving this perspective?

• Large and growing demand for renewable electricity from electrification and decarbonization initiatives supports monetization of Eolus 26 gigawatt multi technology development pipeline. This should drive higher project sales and revenue visibility over time.
• Increasing appetite for long term power purchase agreements and tolling contracts, illustrated by exclusive PPA negotiations for Fågelås, Boarp and Dållebo and ongoing talks for Roccasecca, is set to de risk projects and enable higher leverage. This supports margins and return on equity.
• Expanded strategic focus beyond wind into solar PV and grid scale battery energy storage, including the new 100 megawatt BESS in SE4 and U.S. BESS projects, positions Eolus to capture value in grid balancing and flexibility markets. This lifts future earnings quality and potential fee based income.
• Shift toward earlier divestments and project rights sales, such as the intended earlier sale of Roccasecca and the lighter risk profile in Pienava project management, should reduce construction risk and working capital swings. This stabilizes EBIT and net margins across cycles.
• Strengthened green bond, revolving credit and project finance facilities increase financial flexibility to recycle capital from late stage assets like Pome and the Swedish wind cluster into higher return development opportunities. This supports long term revenue growth and scalable earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Eolus Aktiebolag's revenue will decrease by 38.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.2% today to 40.9% in 3 years time.
• Analysts expect earnings to reach SEK 316.2 million (and earnings per share of SEK 11.57) by about December 2028, up from SEK 272.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK447.2 million in earnings, and the most bearish expecting SEK198.2 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 8.7x on those 2028 earnings, up from 3.6x today. This future PE is lower than the current PE for the GB Construction industry at 18.1x.
• 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 9.08%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Project timing risk remains high because Eolus revenue and EBIT are heavily dependent on large, irregular project divestments. Delays such as the Pome handover slippage from the second quarter into the second half of 2025 can quickly turn growth expectations into weaker revenue and earnings over multi quarter periods.
• Rising project size and capital intensity combined with a persistently soft Northern European transaction market increase the risk that assets such as Fågelås, Boarp and Dållebo must be held longer on Eolus balance sheet. This could tie up SEK 1.4 billion to SEK 1.5 billion of CapEx and pressure cash flow, net debt and ultimately net margins if exit valuations disappoint.
• Interest costs and financing risk may erode profitability because large scale projects such as the roughly EUR 200 million Pome wind farm rely on construction credit and bond financing. Any delay or refinancing at higher rates can compress project margins and reduce group level EBIT and return on equity over time.
• Execution risk in new markets and technologies, including U.S. BESS projects such as Roccasecca and early stage grid scale BESS in Sweden, could lead to cost overruns, permitting issues or suboptimal contract structures. This would weaken the quality and predictability of earnings and reduce long term margin expansion.
• Structural reliance on PPAs and tolling agreements to make projects bankable creates exposure to counterparty appetite and power price cycles. If PPA demand weakens or pricing tightens, Eolus may be forced to accept lower sales prices or keep more merchant exposure, which would depress future revenue visibility and net profit margins.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of SEK85.0 for Eolus Aktiebolag based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be SEK773.2 million, earnings will come to SEK316.2 million, and it would be trading on a PE ratio of 8.7x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of SEK39.5, the analyst price target of SEK85.0 is 53.5% higher.
  
• 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.