New Markets And BESS Projects Will Define Our Future

Key Takeaways

• Diversification into new markets and technologies is expected to drive high returns and improve net margins with minimal capital expenditure.
  
• Successful refinancing and project transactions aim to enhance financial performance and stabilize earnings in volatile power markets.
  
• Financial instability due to negative profit and volatile currency, power markets, and increased competition could undermine investor confidence and revenue growth.

Catalysts

Operates in the renewable energy sector.

• Arise is making significant progress in its Development segment, boasting a project pipeline of 9,000 megawatts, focused on entering new markets like Germany and expanding into BESS projects, which could drive future revenue growth.
  
• The successful diversification into various geographies and technologies, such as the Finnish BESS project sale, is expected to yield high returns with minimal capital expenditure, likely improving net margins.
  
• With hedges secured for Q4 2025 and Q1 2026 at favorable prices, Arise is positioned to stabilize earnings amidst volatile power markets, potentially supporting earnings predictability.
  
• Arise is targeting additional project transactions this year, leveraging its diversified project portfolio, which could result in substantial revenue inflows as these projects mature and are sold.
  
• Reduction in financing costs from a successful refinancing could enhance net margins and overall financial performance, providing more resources for future growth initiatives.

Arise Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Arise's revenue will grow by 27.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 38.5% today to 46.0% in 3 years time.
• Analysts expect earnings to reach SEK 444.5 million (and earnings per share of SEK 9.37) by about May 2028, up from SEK 181.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK526 million in earnings, and the most bearish expecting SEK363 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.5x on those 2028 earnings, down from 7.8x today. This future PE is lower than the current PE for the GB Renewable Energy industry at 8.2x.
• Analysts expect the number of shares outstanding to decline by 3.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.82%, as per the Simply Wall St company report.

Arise Future Earnings Per Share Growth

Risks

• Exchange rate fluctuations, particularly the weaker euro, had a significant negative impact on the Development segment's revenue and EBITDA, which could continue to affect net margins and earnings if currency volatility persists.
  
• The company's negative profit after tax, even when adjusting for one-off refinancing costs, reflects financial instability that could affect investor confidence and future earnings growth.
  
• The power markets experienced volatile and declining spot prices due to a strong hydrological surplus and low demand in the Nordics, which could further impact revenue and net margins if conditions do not improve.
  
• Increased competition and soft power markets may pressure down the potential sale prices for projects, potentially leading to lower revenue and thinner net margins in the future.
  
• The geopolitical and financial market turbulence may introduce additional risks for investment and financial stability, potentially affecting Arise's revenue and ability to meet its financial targets.

Valuation

• The analysts have a consensus price target of SEK76.5 for Arise based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK966.0 million, earnings will come to SEK444.5 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 5.8%.
  
• Given the current share price of SEK34.45, the analyst price target of SEK76.5 is 55.0% 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.