Enersense - Scope for further earnings gains

Enersense’s revenue continued to grow strong in Q3, however the ERP investment costs limited profitability potential while the segments’ margins are still improving. In our view growth will stabilize while earnings climb more.

High growth, earnings are still burdened by investments

Enersense’s Q3 revenue grew 46% y/y to EUR 94m, above our EUR 80m estimate as all other segments except Connectivity grew faster than we estimated. The EUR 3.9m EBITDA, however, missed our EUR 5.2m estimate. The earnings miss was attributable to the ERP investment costs as segmental profitability levels were as a group in line with our estimates. Investments in the EV charging business somewhat limited Power’s profitability, and Smart Industry still has room to improve as its offshore business continues to scale up. Enersense revised its revenue guidance upwards, which wasn’t a surprise given the high demand; next year’s growth is likely to be much more modest, but profitability has a lot more room to gain. Enersense’s guidance leaves the range for Q4 EBITDA rather wide (including wind farm projects within Power) as investments continue while there are still variables related to seasonality and larger projects.

Most segments continue to grow next year

ERP investments burden Q4 and next year to some extent, whereas Power’s EV charging investments aren’t that large at group level. Connectivity and Power have scope to grow also next year thanks to their order backlog, while the offshore scale up drives Smart Industry. The Baltic business has turned around in terms of profitability after a period of high inflation, however International Operations may not grow next year as order backlog has peaked and it needs to find new growth opportunities. In our view this shouldn’t be a long-term problem but it demands some time and effort.

Earnings growth implies low multiples going forward

We estimate around 4% growth for next year, not that much compared to this year’s estimated 24% rate, yet margins are set to improve further. We continue to estimate Enersense’s FY ’24 EBITDA at some EUR 22m; Enersense is therefore valued around 7x EV/EBIT on our FY ’24 estimates, a significant peer discount. Our new TP is EUR 5.0 (7.0) as we retain BUY rating.

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