Fortum Oyj (HLSE:FORTUM) Signs Google Power Deal, Is The Upside Already Priced In?

Why Fortum Oyj’s New Google Alliance Matters For Investors

Fortum Oyj (HLSE:FORTUM) has agreed a multi decade power purchase agreement with Google in Finland, tying up to 50% of the Loviisa nuclear plant’s capacity through 2050 and supporting Fortum’s long term nuclear investment plans.

Recent trading suggests investors are warming to this story, with Fortum Oyj’s share price returning 10.3% over the past month and 15.5% year to date. Its 48.2% one-year total shareholder return points to momentum that has been building rather than fading.

Scan beyond Fortum Oyj and this new Google deal by reviewing a curated set of 39 power grid technology and infrastructure stocks that are shaping the next phase of energy infrastructure.

Bulls see the Google pact and €1,000 million Loviisa programme as evidence that Fortum Oyj may be underpriced for its contracted nuclear cash flows, while bears highlight the recent 48.2% one-year return. Which side does the current valuation appear to support?

Most Popular Narrative: 20.9% Overvalued

Compared with the last close at €21.36, the most followed Fortum Oyj narrative anchors on a fair value of €17.67. This pulls the story into focus around higher valuation expectations and what needs to go right to support them.

In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be €5.6 billion, earnings will come to €912.4 million, and it would be trading on a PE ratio of 20.7x, assuming you use a discount rate of 6.0%.

Read the complete narrative. Read the complete narrative.

Want to see what earnings path and margin profile sit behind that equity story? The narrative leans on a specific growth tempo, tighter profitability, and a premium future multiple. Curious which assumptions carry the most weight in that €17.67 outcome.

Result: Fair Value of €17.67 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

Still, Fortum Oyj’s cost reduction drive and its growing pipeline of wind and solar projects could both challenge the idea that today’s valuation is too rich.

Find out about the key risks to this Fortum Oyj narrative.

Another View: Fortum Oyj Through A Cash Flow Lens

The analyst narrative frames Fortum Oyj as 20.9% overvalued at €17.67, yet our DCF model presents a different perspective. On that approach, the fair value is around €40.50 per share, which is above the current €21.36 price. Which set of assumptions do you consider more robust?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Fortum Oyj for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 249 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Mixed signals around Fortum Oyj can be useful if you are willing to test them against your own framework and move before the crowd catches up. To weigh the enthusiasm around potential rewards against the concerns flagged on the risk side, start by grounding your view in the data behind these 2 key rewards and 1 important warning sign.

Looking For More Investment Ideas Beyond Fortum Oyj?

Do not stop with Fortum Oyj. Fresh opportunities can emerge quickly, so widen your search now and give yourself more options before the next move happens.

• Target potential mispricings by scanning a focused set of 249 high quality undervalued stocks that combine appealing valuations with stronger underlying fundamentals.
• Prioritize stability by reviewing a list of solid balance sheet and fundamentals (193 results) that can help you concentrate on businesses with healthier financial foundations.
• Spot underfollowed opportunities early by checking a 616 high quality undiscovered gems that surfaces quality companies sitting outside the usual watchlists.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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