European Grid Modernization And Capacity Expansions Will Unlock Future Promise

Key Takeaways

• Large, multi-year project backlogs and significant capacity expansions ensure strong, stable growth prospects and reduced revenue risk for several years.
  
• Shift toward higher-margin products and expanding service lines is driving improved profitability and supporting a more resilient earnings profile.
  
• Dependence on volatile low-margin work, execution risks from expansion, and cash flow pressures threaten future profitability and financial flexibility, especially amid market or regulatory disruptions.

Catalysts

Designs, manufactures, and installs low, medium, and high voltage power cable solutions in Denmark.

• Major grid infrastructure investments and government-driven decarbonization targets across Europe are sustaining robust, multi-year demand for NKT's core products (high-voltage and medium-voltage power cables). Substantial capacity expansions (factories and vessels coming online by 2027) strongly position NKT to capture this long-term growth, likely supporting higher revenues and operating leverage as these assets ramp up.
  
• Long-term visibility from the €10.1 billion high-voltage backlog plus €3.5 billion in customer commitments (expected to convert to firm orders over several years) significantly de-risks top-line projections through 2028, aligning NKT for continued steady organic revenue growth and backlog-to-revenue conversion.
  
• Expansion and strong execution in service and maintenance offerings, along with double-digit growth in recurring accessories revenue, are steadily improving overall margin quality and driving higher operational EBITDA, supporting a more resilient and higher-margin earnings base.
  
• Increased market share in medium-voltage Power Distribution (driven by grid modernization and urbanization), coupled with successful capacity additions and easing competitive pressure, is already resulting in record margins in Applications and should underpin sustained margin and earnings growth going forward.
  
• Order mix and backlog rotation into newer, higher-margin projects from 2027-when new production assets are fully operational-is set to drive a step change in overall group EBITDA and return on capital employed, with positive earnings inflection expected as legacy contracts roll off and premium contracts begin generating revenue.

NKT Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NKT's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.0% today to 7.5% in 3 years time.
• Analysts expect earnings to reach €329.1 million (and earnings per share of €6.03) by about August 2028, up from €213.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, down from 20.3x today. This future PE is lower than the current PE for the GB Electrical industry at 21.8x.
• 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 6.72%, as per the Simply Wall St company report.

NKT Future Earnings Per Share Growth

Risks

• Heavy reliance on short-term, low-margin variation orders and third-party subcontracted work in the Solutions segment increases revenue volatility and dilutes overall margins, making organic profit growth less sustainable-potentially pressuring net margins and EBITDA quality.
  
• Capital intensity and ambitious expansion plans (€2 billion CapEx through 2028) expose NKT to execution risk, potential budget overruns, and delayed returns; any setbacks in bringing new capacity online or project overruns could impair future earnings and dilute RoCE.
  
• Temporary improvement in Applications segment margins is driven by favorable mix, easing competition, and seasonality, but management's reluctance to commit to sustained double-digit margins signals risk of future margin compression-particularly if competitive intensity increases or demand reverses, directly impacting net income.
  
• High-voltage order backlog is concentrated (90%+ with European TSOs), and short-term awards have declined year-on-year; project timing, permitting delays, and political or regulatory uncertainties may prolong cash conversion, reducing order visibility and postponing revenue recognition.
  
• Free cash flow is negative due to working capital swings and elevated investment outflows; with ongoing high CapEx, NKT risks prolonged negative free cash generation, especially if market conditions worsen or backlog conversion is delayed, which could strain the balance sheet and reduce financial flexibility.

Valuation

• The analysts have a consensus price target of DKK606.743 for NKT 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 DKK851.0, and the most bearish reporting a price target of just DKK435.13.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.4 billion, earnings will come to €329.1 million, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 6.7%.
• Given the current share price of DKK603.0, the analyst price target of DKK606.74 is 0.6% 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.