EUR 458.03 For Business Accounts Only

Elmera Group (Sell, TP: NOK12.00) - Losing Power

Following the significant profit warning in late December, we expect Elmera to report a neutral set of Q4 results. Key focus will be on the outlook for 2023 and how it aims to deliver on its lowered FY guidance in an already challenging market facing significant headwinds. We reiterate our SELL and cut out target price to NOK12 (13). You have been warned. We forecast a Q4 EBIT of NOK49m, versus consensus of NOK111m. Our forecast reflects a NOK25m EBIT loss in the consumer segment, in line with the profit warning of negative EBIT, continued significant losses from the Nordic segment (NOK-38m), and a strong performance from the business segment. Lower share of high margin contracts… Elmera saw customer growth of 20k in Q4. However, the share of customers having high-margin variable contracts decreased from 27% at the beginning of Q4 to 15% following significant negative media attention, as these customers ended up paying very high prices as they were not subject to the government’s electricity support scheme. On top of this come new regulatory changes, which have increased transparency. …with 2023 guidance already lowered. In conjunction with the Q4 profit warning, Elmera guided for 2023e EBIT of NOK500m (previous guidance NOK500m–550m). However, as the previous guidance reflects a cNOK100m positive reclassification of interest cost previously reported as a part of COGS, it implies a c20% downward revision to the 2023 guidance. Our 2023e EPS is down 40%. Regulatory risk remains high. On 3 January, the Norwegian prime minister threatened to introduce a margin cap if the industry does not stop selling misleading contracts. Energi Norge (member association for electricity retailers) recently banned door and street sales of electricity contracts, and it is discussing the same for sales in stores. The latter has historically represented a significant share of sales. We note the availability of fixed-price contracts in the business segment has increased, while there is no offering for the consumer segment and there is no clarity on electricity support for 2024. Reiterate SELL and cut target price to NOK12 (13). On our revised estimates, Elmera is trading at a 2022–2023e P/E of 9–12x. We note 2022e EPS is down c55% from the 2020 peak.