ESG Scrutiny And Renewable Disruption Will Erode Future Returns

Key Takeaways

• Shifting regulatory, technological, and investor preferences toward renewables may reduce EQT's fundraising success, asset growth, and portfolio returns.
  
• Rising compliance costs and stronger competition in private markets threaten lower margins, profitability, and visibility over earnings and cash flows.
  
• Stable management fees, ample investment capacity, and global diversification position the firm for resilient revenue growth and strong returns despite economic uncertainty.

Catalysts

A global private equity & venture capital firm specializing in private capital and real asset segments.

• Intensifying global decarbonization efforts and greater regulatory pressure on climate impact threaten to redirect both capital and policy support to renewable energy, which could significantly curtail private equity allocations to infrastructure and energy transition assets, putting EQT's fundraising, deployment velocity, and long-term revenue growth at risk.
  
• Persistent ESG scrutiny and the accelerating preference for low-carbon investment vehicles are likely to raise compliance costs, undermine EQT's ability to attract new capital, and erode its fee-generating asset base, contributing to a structural squeeze on net margins over time.
  
• Ongoing technological disruption from renewables and energy storage, combined with potential step changes in adoption, increase the probability that core sectors targeted by EQT's infrastructure funds could see declining relevance and lower underlying growth, diminishing portfolio company earnings and exit multiples across future fund vintages.
  
• EQT's heavy exposure to illiquid private market strategies and extended fundraising cycles amidst heightened uncertainty increases the likelihood of prolonged periods of low realization volumes and delayed performance fee recognition, directly pressuring earnings and cash flow visibility in the medium term.
  
• Competition for capital within private markets is set to intensify due to slower industry-wide fundraising, increased manager consolidation, and limited sources of new client inflows, raising the risk that EQT will need to further discount fees or increase operating expenditures to maintain market share, driving down future operating leverage and long-term profitability.

EQT Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on EQT compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming EQT's revenue will grow by 11.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 29.3% today to 45.7% in 3 years time.
• The bearish analysts expect earnings to reach €1.7 billion (and earnings per share of €1.43) by about July 2028, up from €776.3 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 21.5x on those 2028 earnings, down from 45.4x today. This future PE is lower than the current PE for the SE Capital Markets industry at 22.7x.
• Analysts expect the number of shares outstanding to decline by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

EQT Future Earnings Per Share Growth

Risks

• EQT's management fees are contractually secured over the lifetime of its funds, typically 10 years or more, and are charged primarily on committed (not invested) capital, which provides strong long-term visibility on recurring revenues and helps cushion against economic downturns or market volatility.
  
• The firm closed EQT Infrastructure VI at its hard cap of €21.5 billion, distributed across a diverse global client base, including significant commitments from existing institutional investors, indicating sustained high demand and confidence in EQT's platform and supporting the outlook for robust long-term fee and performance income.
  
• Despite current macro uncertainty and slower market conditions, EQT maintains over €50 billion in dry powder, which allows it to be opportunistic during downturns, invest in high-quality assets at attractive valuations, and create long-term value that can enhance future earnings and investment returns.
  
• EQT's global and diversified investment footprint-across sectors such as healthcare, software, digital infrastructure, and essential services in Europe, North America, and Asia-mitigates geographic and sector-specific risks and provides stable platforms for sustained revenue growth and resilient net margins.
  
• EQT's long track record of profitable exits and value creation, supported by a robust pipeline for fundraising (including expansion of evergreen/private wealth offerings and new flagship funds), positions the firm to continue to generate performance fees and strong earnings growth, even if fundraising cycles or exit activity temporarily slow.

Valuation

• The assumed bearish price target for EQT is SEK294.75, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of EQT'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 SEK411.5, and the most bearish reporting a price target of just SEK294.75.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €3.7 billion, earnings will come to €1.7 billion, and it would be trading on a PE ratio of 21.5x, assuming you use a discount rate of 6.2%.
• Given the current share price of SEK338.8, the bearish analyst price target of SEK294.75 is 14.9% 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.