Merus Power: Balance sheet strengthened by a directed share issue

Translation: Original published in Finnish on 6/19/2025 at 8:57 am EEST.

The share issue raised capital for the balance sheet with what we consider reasonable dilution. From the arrangement of the share issue, we believe it is difficult to draw major conclusions regarding Merus Power's current year forecasts. The company has recently grown rapidly, but at the same time, profitability development has been subject to uncertainty. Achieving a profitability turnaround would be important for the company to be able to finance future growth through internal cash flow.

We consider the dilution caused by the share issue reasonable

Merus Power announced yesterday after market close that it would launch an accelerated book-building process for a directed share issue, and later in the evening announced the results of the issue. A total of 2.0 MEUR in gross proceeds was raised in the issue by issuing 442,634 new shares of the company at a subscription price of EUR 4.50 per share. New shares represent approximately 5.8% of the company's shares before the issue and 5.5% after the issue. As a result, Merus Power raised growth capital with relatively small dilution, in our view. The subscription price was 10% below the closing price on June 18 (EUR 5.0) and 12% below the two-week volume-weighted average price (EUR 5.11). We consider the directed share issue justified, given the relatively small scale of the capital to be raised and the higher issuance cost of a potential rights issue. The share issue was carried out pursuant to the authorization granted by the general meeting to the board for a maximum of 600,000 shares. We will update our forecasts regarding the share issue before the H1 report release, but in our view, the impact of the share issue on the fair value of the share is very minor.

Funds are required to finance working capital during a rapid growth phase

According to the company's release, the net proceeds raised from the share issue are intended to strengthen the adequacy of working capital to promote Merus Power's international growth and profitability in line with its strategy. The company's revenue and order book have recently experienced strong growth (2025e revenue: +25% y/y), which continuously ties up more working capital on the balance sheet. In our view, the tightening of debt financing conditions may also affect the need for equity financing. The company had net cash of 1.2 MEUR at the end of 2024, and we have forecast this to turn into net debt of 1.0 MEUR at the end of 2025 (excluding the positive balance sheet impact of the share issue). Working capital fluctuations can at times have a significant impact on changes in net debt.

A share issue naturally does not provide a favorable signal regarding the company's short-term profitability development, but on the other hand, it gives a positive signal regarding future revenue growth prospects. We believe the company's strategic priorities are shifting increasingly towards improving profitability, so that future growth could also be financed by internal cash flow.