NKT: Powering the Energy Transition

NKT is a leading European company that helps transport electricity through advanced power cable systems and plays an important role in the global energy transition. Known for supplying high voltage cables used to connect offshore wind farms, strengthen electricity grids, and link countries through cross border power connections, the company combines technological expertise with a business model that covers everything from designing and manufacturing cables to installing and servicing them. With a growing order backlog, major investments in expanding production capacity, and strong exposure to long term trends such as electrification, renewable energy, and rising electricity demand, NKT aims to strengthen its position in critical energy infrastructure while driving long term growth. The question remains: Does this energy infrastructure leader deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in NKT at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of NKT, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

NKT was founded in 1891 and has evolved from one of the pioneers in the cable industry into a leading European pure play provider of power cable solutions that enable the transmission and distribution of electricity. The company plays a critical role in the global energy transition by designing, manufacturing, and installing cable systems that connect renewable energy sources such as offshore wind farms, strengthen electricity grids, and support the growing electrification of society. Following a strategic transformation over the past decade, NKT has shifted away from being a diversified industrial group to focus entirely on power cable solutions, positioning itself as a leading enabler of Europe’s energy infrastructure modernization. Through its integrated capabilities across design, manufacturing, installation, accessories, and maintenance, NKT provides customers with end to end turnkey solutions that reduce complexity and improve reliability in highly critical energy infrastructure projects. From 2026, NKT operates through three business lines: Transmission, Distribution, and Grid Solutions & Accessories. Transmission, previously known as Solutions, is the company’s largest and most strategically important business line. It specializes in extra high voltage alternating current and direct current cable systems used to transport electricity over long distances, both offshore and onshore. These systems are essential for connecting offshore wind farms, linking countries through electricity interconnectors, and upgrading aging transmission infrastructure. NKT has developed advanced expertise in high voltage direct current technology, particularly within 525kV XLPE DC cables, which are increasingly becoming the preferred solution for long distance electricity transmission due to lower power losses and higher efficiency. The company operates advanced high voltage factories in Karlskrona, Sweden, and Cologne, Germany, where Karlskrona focuses primarily on offshore projects and Cologne focuses on onshore installations. By combining manufacturing with project engineering, installation capabilities, and its cable laying vessel, NKT Victoria, the company offers complete turnkey solutions that are increasingly demanded by customers undertaking complex energy infrastructure projects. The Distribution business line, formerly Applications, focuses on medium and low voltage power cables used in electricity distribution, renewable energy projects, industrial networks, data centers, and buildings. These cables are critical for ensuring electricity reaches homes, cities, industrial facilities, and infrastructure projects efficiently and reliably. NKT operates production facilities across several European countries and maintains strong market positions in Northern and Eastern Europe while selectively expanding into additional markets. The company works closely with utilities, contractors, and renewable energy developers through long term customer relationships, allowing it to adapt products to specific regional requirements and evolving grid needs. As electricity demand continues to grow due to electrification, renewable energy expansion, and data center development, NKT is investing in additional capacity to strengthen its position in medium voltage cable markets. Grid Solutions & Accessories, formerly Service & Accessories, combines NKT’s lifecycle service capabilities with its accessories business and onshore AC high voltage projects. This business line supports the long term reliability and performance of electricity networks through maintenance, repairs, upgrades, and essential cable components such as joints, connectors, and terminations. Because electricity infrastructure is expected to last for decades and downtime can be highly costly, customers depend on reliable service providers to maintain performance and ensure uninterrupted power transmission. NKT also produces advanced accessories that are critical to ensuring fully qualified cable systems, particularly in extra high voltage and medium voltage applications. By integrating accessories production, project execution, and service capabilities, NKT strengthens customer relationships while creating additional recurring revenue opportunities throughout the lifecycle of cable systems. A defining characteristic of NKT’s business model is its role as a provider of turnkey power cable solutions. Rather than only manufacturing cables, the company supports customers throughout the entire process, including engineering, production, installation, accessories, maintenance, and repairs. This integrated offering reduces execution risk for customers undertaking large and technically demanding infrastructure projects while also allowing NKT to capture more value across the project lifecycle. The complexity of many high voltage transmission projects, particularly offshore interconnectors and offshore wind connections, increasingly favors experienced providers capable of delivering complete solutions rather than isolated products. NKT’s competitive moat is primarily built on technology leadership, high barriers to entry, long standing customer relationships, and vertically integrated turnkey capabilities. One of the company’s strongest advantages is its leading position in high voltage direct current technology. Over recent years, electricity transmission has increasingly shifted toward high voltage direct current systems because they allow electricity to travel longer distances with lower losses, making them particularly important for offshore wind projects and cross border grid interconnections. NKT has been one of the pioneers in XLPE DC cable technology and has built significant expertise over more than a century in developing and manufacturing advanced high voltage cable systems. Because only a limited number of companies globally possess the technical know how, certifications, manufacturing expertise, and project execution capabilities needed to deliver these systems, competition remains relatively limited at the highest end of the market. Another important competitive advantage lies in the industry’s exceptionally high barriers to entry. Manufacturing high voltage power cables requires significant investments in specialized factories, highly skilled engineers, technical expertise, and long qualification processes. Projects often involve highly complex engineering, demanding risk management, and years of execution, particularly in offshore installations. Customers are therefore highly reluctant to work with unproven providers because project failures can result in substantial financial losses and grid disruptions. NKT’s long history, proven execution track record, and reputation for quality and reliability provide a strong competitive advantage when bidding for major projects. NKT’s vertically integrated business model further strengthens its moat. The company controls multiple critical parts of the value chain, including cable manufacturing, accessories production, engineering, installation, and maintenance services. Its ownership of the cable laying vessel NKT Victoria allows the company to manage highly complex offshore installations internally, reducing reliance on external providers while improving project execution and flexibility. This ability to deliver complete turnkey solutions simplifies operations for customers and makes NKT a more valuable strategic partner, particularly as energy projects become larger and more technically complex. Long standing customer relationships also reinforce NKT’s competitive position. Utilities, grid operators, renewable developers, and industrial customers typically prioritize reliability, execution capabilities, and technical competence over price alone due to the mission critical nature of electricity infrastructure. Once trust is established, switching suppliers can be costly and risky because cable systems must meet strict technical specifications and reliability standards. NKT’s deep expertise, broad installed base, and extensive project experience create strong customer relationships that support repeat business over time.

Management

Claes Westerlind serves as the CEO of NKT, a role he assumed in May 2023 after several years in senior leadership positions within the company. He brings extensive experience in the power cable and high voltage industries, having spent nearly two decades working with some of the most technically demanding parts of the electricity infrastructure market. His appointment reflects NKT’s strategic emphasis on strengthening execution, expanding capacity, and reinforcing its position as a leading provider of power cable solutions supporting the energy transition. Before becoming CEO, Claes Westerlind held several leadership positions at NKT following the company’s acquisition of ABB HV Cables in 2017, where he joined as part of the transaction. In 2019, he was appointed Executive Vice President and became a member of NKT’s global leadership team. During this period, Claes Westerlind played an important role in scaling the company’s high voltage business, helping secure a record high order backlog and supporting major investment and expansion initiatives, particularly at the Karlskrona facility in Sweden. These investments were designed to strengthen NKT’s production capacity and technological capabilities at a time when demand for high voltage cable systems accelerated due to renewable energy expansion and grid modernization. Prior to joining NKT, Claes Westerlind spent more than a decade at ABB, now part of Hitachi Energy, where he held various technical, commercial, and leadership positions within the power cable and high voltage direct current converter business units. During his time at ABB, he gained extensive expertise in high voltage transmission systems, project execution, and the technologies that underpin long distance electricity transmission. His experience spans engineering, sales, and operational management, giving him a deep understanding of both the technical and commercial aspects of the power cable industry. Claes Westerlind holds a Master of Science in Mechanical Engineering from Chalmers University of Technology and the Hong Kong University of Science and Technology. Throughout his career, he has built a reputation as a technically skilled and operationally focused leader with deep industry expertise. His leadership approach appears centered on disciplined execution, technological leadership, and maintaining strong customer relationships in an industry where reliability and project delivery are critical. Since becoming CEO, Claes Westerlind has overseen the next phase of NKT’s development as the company transitions from a period of large scale investments and transformation toward a stronger focus on operational excellence and execution. Under the company’s new Charging Forward strategy for 2026 to 2030, NKT is prioritizing the successful delivery of its growing high voltage order backlog, ramping up recently expanded production capacity, and strengthening long term competitiveness. Claes Westerlind has emphasized the importance of quality, project execution, and technology leadership while selectively pursuing growth opportunities in markets where NKT can establish sustainable long term positions. Beyond growth, Claes Westerlind has also highlighted the importance of sustainability and resilience as core elements of NKT’s strategy. Given the company’s critical role in enabling renewable energy integration, grid modernization, and electrification, NKT is increasingly positioned as an important infrastructure provider in the energy transition. At the same time, the company continues to invest in innovation, production capabilities, and employee expertise to maintain its competitive position in a highly technical industry with high barriers to entry. Given his deep industry experience, technical expertise, and operational track record within NKT’s high voltage business, Claes Westerlind appears well suited to guide the company through its next phase of growth. His background in complex infrastructure projects, combined with a strong understanding of customer requirements and execution risk, aligns closely with NKT’s ambition to strengthen its position as a leading provider of power cable solutions supporting the global energy transition.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. NKT has historically generated disappointing returns on invested capital, with ROIC remaining below 10% for most of the past decade and even turning negative in several years. This reflects both the capital intensive nature of the business and the company’s earlier transformation period. Building and expanding advanced cable manufacturing facilities requires significant investments in specialized factories, machinery, and technical expertise that often take years before generating meaningful returns. At the same time, NKT operates in an industry driven by large and complex projects where earnings can vary depending on the type of projects being completed and when they are delivered. Many high voltage cable projects take years to complete and require large upfront investments, which historically made it difficult for the company to generate consistently strong returns. The weak ROIC in earlier years was also influenced by NKT’s transition from a diversified industrial company into a focused power cable provider. Over the past decade, the company invested heavily in expanding high voltage production capacity, strengthening technological capabilities, and building expertise to position itself for rising demand driven by electrification, offshore wind, and grid modernization. These investments increased the amount of money tied up in the business long before the earnings benefits fully materialized, which naturally held back returns for a period. However, the picture has changed significantly in recent years. Since 2023, ROIC has improved dramatically, exceeding 20% in each of the past three years. This improvement reflects much stronger profitability, better project execution, and a more favorable mix of large and technically advanced projects. NKT has benefited from a record high order backlog, stronger demand for high voltage cable systems, and increasing importance of high voltage direct current technology, where competition is more limited. Because only a few companies globally can deliver these highly complex cable systems, NKT has been able to improve profitability as demand for offshore wind connections, grid upgrades, and electricity interconnectors has increased. Management primarily focuses on return on capital employed, also known as ROCE, rather than ROIC, and aims to achieve a ROCE of at least 22% by 2030. While ROIC and ROCE are not identical metrics, they generally move in the same direction and provide a similar indication of how effectively a company turns investments into profits. Management has noted that returns will likely vary from year to year depending on the timing of major projects, customer payments, and the large investments currently being made to expand production capacity. In 2025, returns declined somewhat from the exceptionally strong level in 2024 because the company continued investing heavily in new facilities and expansion projects. Looking ahead, I believe ROIC is likely to remain significantly stronger than historical levels, although perhaps not consistently at the exceptionally high levels seen in the past three years. The key drivers behind stronger returns appear structural rather than temporary. NKT benefits from growing demand for electricity transmission, limited competition in advanced high voltage systems, stronger pricing in technically demanding projects, and a much larger order backlog than in the past. In addition, many of the large investments in factories and production capacity have already been made, meaning future growth could increasingly translate into stronger profitability. However, NKT remains a company that requires substantial investments to grow, and returns may fluctuate depending on the timing and mix of large projects.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. NKT’s equity has generally developed in a positive direction over time, although the journey has not been perfectly smooth. The company experienced periods of declining equity in earlier years, particularly between 2017 and 2019, where profitability was weaker and the business was still going through a significant transformation. During this period, NKT was investing heavily to strengthen its position in the high voltage cable market while also simplifying the business and focusing more on becoming a pure play power cable provider. These investments took time to translate into stronger earnings, which limited equity growth. However, the picture has improved significantly in recent years. Since 2020, NKT has managed to grow equity in most years and reached a new record high in 2025. This improvement reflects much stronger profitability, successful execution of major projects, and growing demand for high voltage cable systems driven by electrification, offshore wind, and grid modernization. As earnings have improved, the company has been able to build more value for shareholders over time. The strong growth in equity seen in 2023, 2024, and 2025 is particularly encouraging because it suggests that earlier investments in factories, technology, and capabilities are now contributing meaningfully to financial performance. Unlike some companies that return large amounts of capital through aggressive share buybacks, NKT has primarily focused on reinvesting in the business to support future growth. The company is currently investing heavily in expanding production capacity, particularly within high voltage cables, to meet increasing demand from grid upgrades and renewable energy projects. While these investments require significant capital today, management expects them to strengthen the company’s earnings power over time. This creates a different equity profile compared to more mature businesses that prioritize returning excess cash to shareholders. It is also worth noting that equity may fluctuate from year to year because NKT operates in a project driven industry. The timing of large projects, deliveries, and customer payments can influence reported results in any given year. Since many projects are highly complex and span several years, financial performance can vary depending on which projects are completed and when earnings are recognized. This means equity growth is unlikely to follow a perfectly straight line. Looking ahead, I believe equity is likely to continue growing in most years. The structural drivers supporting NKT’s business remain strong, including rising electricity demand, renewable energy expansion, grid modernization, and increasing interconnection between countries. The company also enters this period with a record high order backlog and major production expansions that should support future earnings growth. While growth may occasionally fluctuate depending on project timing and continued investments, NKT appears structurally better positioned than it was a decade ago. If management executes successfully on its Charging Forward strategy and profitability continues improving, equity should continue reaching new highs over time.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. NKT’s free cash flow has historically been volatile, with some years showing very strong cash generation and others showing much weaker results or even negative free cash flow. This volatility is largely a reflection of the company’s business model and the project driven nature of the power cable industry rather than an indication of instability in the underlying business. One of the main reasons for this volatility is that NKT works on large and highly complex projects that often span several years. Cash generation can vary significantly depending on when projects reach certain milestones and when customers make payments. In some years, NKT receives large upfront payments for projects, while in other years the company may spend more cash building and executing projects before receiving payments later. This means free cash flow can fluctuate meaningfully even if the underlying demand for the business remains strong. Another major factor influencing free cash flow is NKT’s very high level of investments. The company is currently in one of the largest investment phases in its history as it expands production capacity to meet growing demand driven by electrification, renewable energy, offshore wind, and grid modernization. NKT is investing heavily in a new high voltage factory in Karlskrona, expanding capacity in Cologne, adding medium voltage production capacity in several European countries, and building a second cable laying vessel. These investments require substantial amounts of cash upfront and naturally reduce free cash flow in the near term, even if they are expected to strengthen earnings in the future. The very strong free cash flow seen in 2024 was supported by the sale of NKT Photonics, which makes that year unusually strong and difficult to compare directly with other years. However, even excluding this effect, NKT still delivered very strong free cash flow in 2024 despite elevated investment spending, reflecting stronger profitability and improving operational performance. The sharp decline into negative free cash flow in 2025 should therefore not necessarily be interpreted as a deterioration in the business. Instead, it was largely expected and primarily reflects the peak year of NKT’s investment program, where the company invested approximately EUR 743 million to expand capacity. Management has communicated that 2025 represented the highest investment year and expects investments to gradually decline from 2026 onward, although spending will remain elevated through 2028. Because of this, free cash flow is expected to remain somewhat pressured in the near term, and management has indicated that free cash flow could remain negative in 2026 depending on the timing of projects and customer payments. However, as major investments begin to normalize and new production capacity ramps up, the company should increasingly benefit from stronger earnings and improved cash generation. Looking further ahead, I believe free cash flow is likely to improve significantly. Many of the large investments currently weighing on cash flow are growth related and intended to support a much larger earnings base in the future. NKT enters this period with a record high order backlog and strong structural demand driven by renewable energy, grid upgrades, and electrification. If management successfully executes on its Charging Forward strategy and newly expanded facilities begin contributing as expected, the company should eventually generate meaningfully stronger and more stable free cash flow than it has historically. NKT primarily uses its free cash flow to reinvest in the business. Management is currently prioritizing investments in factories, production capacity, installation capabilities, and technological development to strengthen the company’s competitive position and support future growth. The company also maintains a strong balance sheet to support large project execution and manage the cyclical timing of customer payments. While returning cash to shareholders through dividends remains part of the capital allocation strategy, management’s current priority is clearly to reinvest in the business to capture the significant opportunities created by the energy transition. Once the current investment cycle matures and cash generation improves, NKT could potentially increase shareholder returns, but for now the focus remains on building long term earnings power.

Debt

Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within a three year period, calculated by dividing total long term debt by earnings. Upon analyzing NKT’s financials, the company currently has just 0,48 years of earnings in debt, which is well below the three year threshold. This indicates that debt is not a concern for me if I were to invest in NKT. In fact, NKT is currently in an even stronger position than the numbers initially suggest, as the company has more cash than debt. This provides significant financial flexibility at a time when NKT is investing heavily to expand production capacity and strengthen its competitive position. It is also worth noting that NKT has consistently reduced its debt since 2017, reflecting a stronger financial position and improving profitability over time. Despite currently being in the middle of one of the largest investment programs in the company’s history, management still maintains a very strong financial position. At the end of 2025, NKT held a substantial cash reserve, which management views as important for funding ongoing expansion projects and supporting future growth opportunities. This is particularly important in a business like NKT’s, where projects are large, technically complex, and often require significant upfront investments. Another encouraging sign is that management remains highly focused on maintaining financial discipline even while investing aggressively. The company aims to preserve a strong balance sheet that allows it to continue expanding while also managing the natural fluctuations that come with large infrastructure projects. While the company’s cash position may gradually decline as planned investments continue through 2028, NKT appears financially well prepared to fund these initiatives without putting unnecessary strain on the business.

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Risks

The execution of high voltage projects is a risk for NKT because a significant part of the company’s revenue comes from large and highly complex high voltage cable projects that often take several years to complete. These projects involve multiple stages, including engineering, manufacturing, transportation, installation, and final testing, all of which must be carefully coordinated. Unlike standardized products that can be produced and sold repeatedly, many of NKT’s high voltage projects are customized to specific customer requirements and locations. This makes execution particularly demanding because even small disruptions can have meaningful financial consequences. One of the biggest challenges is the sheer complexity of these projects. High voltage cable systems often involve offshore wind farms, electricity interconnectors between countries, or major grid upgrades, all of which require advanced engineering and precise coordination between many parties. NKT must work closely with customers, grid operators, suppliers, regulators, and installation teams, often across multiple countries. Because so many moving parts are involved, unexpected issues such as equipment failures, delays in material deliveries, shortages of skilled labor, regulatory hurdles, or technical problems during installation can disrupt timelines and increase costs. Weather conditions also represent an important risk, especially for offshore projects. Many installations require cable laying at sea, where weather windows can be limited and difficult to predict. Strong winds, rough seas, or unfavorable conditions can delay installations for days or even weeks. Since installation vessels and specialized crews are expensive to operate, delays can quickly become costly. NKT’s ownership of its cable laying vessel, NKT Victoria, helps reduce some of this risk by giving the company greater control over installations, but it does not eliminate exposure to weather related disruptions. Another challenge is that NKT often commits to pricing and timelines years before projects are completed. Because high voltage projects have long lead times, the company has limited flexibility to adapt if conditions change during execution. Unexpected increases in costs, supply chain disruptions, changes in regulations, or technical difficulties may reduce profitability on projects that have already been contracted. If delays occur, NKT may also face penalties from customers for missing agreed deadlines or failing to meet performance standards. Project execution risk is particularly important in NKT’s industry because reputation and reliability matter greatly when customers award contracts. Utilities and grid operators typically prefer experienced suppliers with strong track records because failures or delays in electricity infrastructure projects can have major consequences. If NKT experiences repeated execution challenges, it could damage customer relationships and reduce the company’s ability to secure future contracts in a market where trust and timely delivery are critical competitive advantages.

Commodity price volatility is a risk for NKT because the company relies heavily on raw materials such as copper, aluminum, and plastics to manufacture its power cable systems. These materials represent a significant part of production costs, meaning fluctuations in commodity prices can meaningfully affect profitability. Since NKT produces large quantities of cables for both high voltage and medium voltage projects, sudden increases in material prices can quickly increase costs and reduce margins if the company is unable to fully offset them. One of the biggest challenges is the unpredictable nature of commodity markets. Prices for copper and aluminum are influenced by a wide range of factors, including global supply and demand, geopolitical tensions, government policies, trade restrictions, and financial market speculation. For example, the growing electrification of society, renewable energy expansion, electric vehicles, and grid modernization have significantly increased demand for copper in recent years. Because copper is a critical material used in electricity transmission, supply has become increasingly tight, contributing to higher and more volatile prices. At the same time, disruptions in mining regions, labor strikes, environmental regulations, or geopolitical tensions can limit supply and create sudden price spikes. This risk is particularly important for NKT because many of its largest high voltage projects span several years. In many cases, contracts are signed long before production and installation begin, meaning the company must estimate future costs well in advance. If commodity prices rise significantly after a contract has been signed, profitability on that project could come under pressure. This challenge becomes even greater given the scale and duration of many of NKT’s turnkey projects, where large quantities of raw materials are needed over long periods. Raw material availability also represents an important risk. Beyond higher prices, NKT depends on reliable access to key materials to maintain production schedules and deliver projects on time. Supply chain disruptions, geopolitical conflicts, transportation bottlenecks, or shortages among suppliers could delay access to essential materials such as copper or aluminum. Because NKT often works with tight production schedules and large project backlogs, interruptions in material supply could create delays, increase costs, and make project execution more difficult. Commodity price volatility is especially important to monitor because NKT is currently executing a record high order backlog and ramping up production capacity to meet growing demand. As the company takes on more large scale projects, stable access to raw materials becomes increasingly important. If commodity prices remain elevated or supply disruptions intensify, it could temporarily pressure margins and complicate project execution.

Competition is a risk for NKT because the company operates in highly competitive markets where maintaining market share, profitability, and technological leadership requires continuous investment and execution. Although NKT currently holds a strong position in high voltage cable systems, particularly in Europe, the competitive landscape is evolving as existing players expand capacity and potential new entrants look to benefit from the growing demand driven by electrification, renewable energy, and grid modernization. One of the most important risks is increasing competition in the high voltage market. Europe remains NKT’s core market, particularly for high voltage direct current systems used in offshore wind projects, electricity interconnectors, and major grid upgrades. The strong growth outlook for electricity infrastructure has attracted more investment into the sector, prompting existing competitors to expand production capacity and strengthen their own technological capabilities. Companies are investing in larger factories, installation vessels, and engineering expertise to capture a greater share of what has become an increasingly attractive market. If supply grows faster than demand over time, competition for projects could intensify and put pressure on pricing and margins. Another important risk comes from the potential entry of new competitors, particularly from outside Europe. Chinese manufacturers are often mentioned as a potential long term competitive threat. While NKT has noted that Chinese companies have not yet become meaningful competitors in the most technically demanding high voltage direct current projects in Europe, there has been more activity at lower voltage levels. Over time, there is a possibility that foreign manufacturers could establish production facilities within Europe, allowing them to compete more effectively by reducing transport costs and overcoming some regulatory barriers. If competitors are able to offer similar products at lower prices, this could increase pricing pressure and reduce profitability across the industry. The regulatory environment also plays an important role in shaping competition. NKT operates in an industry where local regulations, environmental standards, labor costs, and procurement requirements can influence market dynamics. Management has emphasized the importance of fair competition, particularly if foreign competitors benefit from government subsidies or operate under different labor or environmental standards. If regulatory frameworks fail to ensure equal conditions for competition, European manufacturers such as NKT could face disadvantages when bidding for major infrastructure projects. Competition is also driven by technological development. The power cable industry continues to evolve as transmission distances increase, offshore wind farms move further from shore, and grid systems become more advanced. NKT currently benefits from strong expertise in high voltage direct current technology and turnkey project execution, but maintaining this position requires continuous investment in research, engineering, and manufacturing capabilities. If competitors develop superior technologies, improve efficiency faster, or offer more attractive installation solutions, NKT could lose competitiveness over time. The growing attractiveness of the market itself also creates risk. As governments and utilities commit large amounts of capital to grid upgrades and renewable energy projects, more companies may seek to enter the industry or expand into adjacent segments. While high barriers to entry remain an important protection, especially in the most technically advanced parts of the market, barriers are not impossible to overcome given enough investment and time. Increased competition could lead to more aggressive bidding behavior, reducing profitability even in a growing market.

Reasons to invest

Favorable global trends is a reason to invest in NKT because the company operates at the center of several powerful long term structural trends that are expected to drive growing demand for electricity infrastructure for decades. The global energy system is undergoing a major transformation as societies become more electrified, renewable energy expands, and aging electricity grids require modernization. Since NKT’s power cable systems are essential for transmitting and distributing electricity, the company is well positioned to benefit from these trends regardless of which specific technologies ultimately dominate the energy mix. One of the most important growth drivers for NKT is the energy transition. Governments, utilities, and corporations around the world are investing heavily in renewable energy sources such as wind and solar power in an effort to reduce carbon emissions and improve energy security. However, renewable energy generation often takes place far from where electricity is consumed. Offshore wind farms, for example, are typically located far out at sea, while solar farms are often built in remote areas. This creates a growing need for advanced high voltage cable systems capable of transporting electricity over long distances with minimal energy loss. NKT’s high voltage direct current and alternating current cable systems play a critical role in enabling this transition by connecting renewable energy generation to national electricity grids. Offshore wind development represents a particularly attractive opportunity for NKT. Europe continues to lead the world in offshore wind deployment, and governments are committing to substantial long term buildouts. Countries surrounding the North Sea have collectively pledged to significantly expand offshore wind capacity through 2050, while major projects continue to move forward in markets such as the United Kingdom and Germany. Offshore wind requires large amounts of subsea high voltage cables, making NKT an important beneficiary of continued investment in this area. Electrification is another powerful trend supporting long term demand for NKT’s products. Electricity demand is expected to increase substantially over coming decades as electric vehicles, heat pumps, industrial electrification, artificial intelligence, and data centers place increasing pressure on electricity networks. Global electricity demand is projected to more than double by 2060, while electricity’s share of total energy consumption is expected to increase significantly. As societies shift away from fossil fuels toward electricity, stronger and more extensive grids become necessary to support higher consumption and changing patterns of demand. This directly benefits NKT because larger and more advanced grids require more medium and high voltage power cables. Grid modernization also creates a major long term opportunity. In many developed markets, electricity infrastructure is aging and increasingly unable to support modern energy systems. A significant portion of electricity grids in Europe and North America are approaching the end of their useful lives and require replacement or reinforcement. At the same time, grids need to become more interconnected to manage fluctuations in renewable energy generation and improve energy reliability. This creates demand not only for replacing older infrastructure but also for entirely new transmission systems capable of handling growing electricity flows. NKT already plays an important role in major grid projects such as Germany’s SuedLink and SuedOstLink, which are designed to transport renewable electricity from northern Germany to major population centers further south. Energy security is another increasingly important driver of investment. Europe’s reliance on imported fossil fuels has become a growing concern following geopolitical tensions and supply disruptions. Management has highlighted that a large portion of Europe’s energy supply still depends on imports, creating incentives to build more domestic electricity generation and strengthen transmission networks. Renewable energy combined with stronger interconnections between countries offers a pathway toward greater energy independence. This trend supports additional investments in offshore wind, electricity interconnectors, and domestic grid infrastructure, all of which require NKT’s products and expertise. Digitalization also creates new growth opportunities for NKT. The rapid expansion of data centers, cloud computing, artificial intelligence, and digital infrastructure increases electricity consumption and places greater demands on power reliability. At the same time, electricity grids are becoming smarter and increasingly reliant on monitoring systems, predictive maintenance, and data transmission capabilities. NKT is positioned to benefit from this evolution through advanced cable solutions that help improve reliability and support more intelligent grid management.

Expanding capacity is a reason to invest in NKT because it strengthens the company’s ability to capture growing demand for power cable solutions driven by electrification, renewable energy expansion, and grid modernization. NKT operates in markets where demand is growing rapidly, particularly for high voltage cable systems used in offshore wind projects, electricity interconnectors, and large grid upgrades. In such an environment, production capacity becomes a key competitive advantage because companies can only grow if they are able to manufacture and install enough cable systems to meet customer demand. By investing heavily in new factories, equipment, and installation capabilities, NKT is positioning itself to participate in a larger share of this growing market. One of the most important parts of NKT’s expansion strategy is the major investment program announced in 2023 to strengthen high voltage production capacity. A central element of this expansion is the construction of a new high voltage factory in Karlskrona, Sweden, which will include a 200 meter extrusion tower, expected to become the tallest of its kind in the world. Once operational, Karlskrona is expected to become the world’s largest offshore high voltage cable production site. This matters because large offshore wind farms and long distance electricity transmission increasingly require long and technically advanced high voltage direct current cables, which only a limited number of manufacturers globally can produce at scale. The additional capacity should therefore strengthen NKT’s ability to secure larger projects and increase future revenue. The expansion in Karlskrona is particularly important because it increases both production scale and efficiency. As offshore wind projects move further from shore and electricity transmission distances increase, demand is growing for longer cable lengths and more advanced transmission systems. The new factory is designed to meet these requirements and support larger, more technically demanding projects. Management expects the new capacity to become operational in 2027, although it will likely take time before full utilization is reached because cable production, installation, and final project completion can take more than a year from start to finish. This means the financial contribution should gradually increase through 2027, 2028, and beyond. NKT is also expanding its high voltage production capacity in Cologne, Germany, which strengthens its position in onshore transmission projects. Together, the Karlskrona and Cologne expansions provide greater flexibility and improve the company’s ability to serve both offshore and onshore markets. Another important part of the strategy is the construction of NKT Eleonora, the company’s second cable laying vessel, expected to become operational in 2027. Offshore cable installation is one of the most technically demanding parts of high voltage projects, and installation vessel availability is limited globally. By adding a second vessel, NKT increases its ability to execute more projects simultaneously while reducing dependence on third parties. This not only expands capacity but also improves flexibility and execution capabilities, which can strengthen customer relationships and support profitability over time. Beyond high voltage cables, NKT is also expanding medium voltage production capacity to benefit from the electrification of Europe’s power distribution networks. Additional capacity in Sweden and the Czech Republic already became operational during 2025 and has contributed positively to growth. In Denmark, a new production expansion is ramping up during 2026, while additional capacity in Portugal is expected to become operational later in the year. These investments are aimed at supporting growing demand for medium voltage cables used in local electricity grids, renewable energy projects, infrastructure, and industrial electrification. Management expects these expansions alone to contribute meaningfully to growth in the Distribution business line. Importantly, management appears disciplined in how it approaches expansion. Rather than building capacity simply because the market outlook is strong, NKT has emphasized that it wants confirmed demand and confidence that new facilities can remain highly utilized over the long term. This disciplined approach reduces the risk of overexpansion and helps support attractive profitability once facilities become fully operational.

A large backlog is a reason to invest in NKT because it provides strong visibility into future revenue, supports long term planning, and reduces uncertainty in an industry where projects are often large, complex, and span several years. At the end of 2025, NKT’s high voltage order backlog stood at approximately EUR 10,2 billion, and this was further strengthened by an additional EUR 2 billion order from SSEN in Scotland that became firm in January 2026. Combined with booking commitments exceeding EUR 3,5 billion and additional preferred supplier agreements, this gives NKT unusually strong visibility into activity levels and earnings potential for many years ahead. One of the biggest advantages of a large backlog is predictability. High voltage power cable projects often take several years from award to final installation, meaning revenue is recognized gradually over time. Because NKT already has a substantial amount of contracted work in place, the company has greater confidence in future activity levels compared to businesses that depend heavily on short term demand or cyclical order patterns. Management has repeatedly highlighted that the backlog provides visibility well into the coming years and supports its long term financial ambitions. The backlog is particularly valuable because it allows NKT to focus on long term value creation rather than chasing short term orders. Since the company already has a strong pipeline of work secured, management can take a more disciplined approach when bidding for new projects. Instead of accepting projects at any price simply to keep factories busy, NKT can prioritize projects with better profitability, lower risk, and stronger strategic fit. Management has explicitly stated that the strong backlog allows the company to focus on optimizing factory utilization, risk management, and profitability rather than maximizing order intake at all costs. Another reason the backlog is attractive is its quality. Around 95% of NKT’s high voltage backlog comes from European transmission system operators, which are typically highly reliable counterparties responsible for operating national electricity grids. These customers tend to have strong financial positions and long investment horizons, reducing the risk of cancellations or payment issues. In addition, much of the backlog relates to long term infrastructure investments that are considered essential for electrification, renewable energy integration, and energy security. This makes demand more resilient because many projects are driven by structural needs rather than short term economic conditions. The composition of the backlog also highlights strong exposure to attractive markets. More than half of high voltage orders relate to electricity interconnectors between countries, while approximately 40% are linked to offshore wind projects. Both segments are expected to benefit from long term growth as countries invest in strengthening electricity transmission, integrating renewable energy, and improving grid resilience. Projects such as the Bornholm Energy Island connection in Denmark, major German grid links, and Scottish interconnectors illustrate the type of strategic infrastructure projects that increasingly form part of NKT’s backlog. The backlog also supports confidence in NKT’s large expansion investments. The company is currently investing heavily in new factories, production capacity, and a second cable laying vessel. Because these investments require significant capital, having a large backlog reduces risk by increasing confidence that future capacity will be utilized once it becomes operational. Management has emphasized that expansion decisions are made with a disciplined approach and backed by confirmed demand rather than speculation about future market conditions. This makes the backlog an important foundation for future growth.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 36,59, which is from 2025. I have selected a projected future EPS growth rate of 12%. Finbox expects EPS to grow by 12,1% over the next five years. Additionally, I have selected a projected future P/E ratio of 24, which is twice the growth rate. This decision is based on NKT's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be DKK 674,18. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy NKT at a price of DKK 337,09 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 3.726, and capital expenditures were 5.189. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 3.632 in our calculations. The tax provision was 142. We have 53,45 outstanding shares. Hence, the calculation will be as follows: (3.726 – 3.632 + 142) / 53,45 x 10 = DKK 44,15 in Ten Cap price. However, it is important to view this result with caution. NKT is currently at the peak of one of the largest investment programs in its history, with capital expenditures in 2025 more than three times higher than in 2023. A large portion of these investments is aimed at expanding future production capacity rather than simply maintaining existing operations. This means the calculation likely understates NKT’s long term earnings power and results in a lower Ten Cap price than what the business may be capable of generating once the current investment cycle normalizes. As new factories, production lines, and the second cable laying vessel become operational from 2027 onward, cash generation could improve significantly, making the current Ten Cap calculation somewhat skewed by temporary factors.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share and is used to estimate how long it would take for an investor to recoup the purchase price through the cash generated by the business. However, we cannot make this calculation for NKT at the moment because the company’s free cash flow is currently negative. This is primarily due to NKT being at the peak of one of the largest investment cycles in its history, where substantial amounts of cash are being invested in new factories, production capacity, and a second cable laying vessel to support future growth.

Conclusion

I believe NKT is an intriguing company with a strong management team. The company has built its competitive moat on technology leadership, high barriers to entry, long standing customer relationships, and vertically integrated turnkey capabilities that allow it to deliver complex power cable solutions from production to installation. ROIC has historically been underwhelming but has improved significantly in the past three years and is expected to remain at a high level moving forward as new capacity comes online and profitability improves. Free cash flow was negative in 2025 and may also remain negative in 2026. However, this is largely due to the company being at the peak of one of the largest investment cycles in its history, and free cash flow is expected to improve significantly from 2027 onward as investments begin contributing more meaningfully to earnings. The execution of high voltage projects is a risk for NKT because these projects are highly complex, customized, and often take several years to complete, making them vulnerable to delays, cost overruns, technical issues, and unfavorable weather conditions. Since even small disruptions can increase costs, reduce profitability, and damage customer relationships, NKT’s ability to execute projects reliably is critical to maintaining its competitive position and securing future contracts. Commodity price volatility is another risk because the company relies heavily on raw materials such as copper, aluminum, and plastics, meaning sudden price increases can raise production costs and pressure profitability. Since many of NKT’s largest projects are contracted years in advance, rising material prices or supply disruptions can reduce margins if costs increase after agreements have already been signed. Competition is also a risk because NKT operates in an increasingly attractive market where both existing competitors and potential new entrants are expanding capacity to benefit from growing demand for electricity infrastructure. If competitors offer similar solutions at lower prices, develop better technologies, or intensify bidding pressure, it could weaken NKT’s market position and profitability over time. On the other hand, favorable global trends represent an important reason to invest in NKT because the company operates at the center of powerful long term trends such as electrification, renewable energy expansion, grid modernization, and growing electricity demand. Since NKT’s power cable systems are essential for connecting renewable energy, strengthening aging grids, and supporting rising power consumption from areas such as electric vehicles, data centers, and artificial intelligence, the company appears well positioned to benefit from decades of infrastructure investment. Expanding capacity is another reason to invest because NKT is significantly increasing its production and installation capabilities to meet growing demand. Through new factories, expanded production sites, and a second cable laying vessel, the company is positioning itself to secure larger projects, increase future revenue, and strengthen its competitive position in a market with strong long term demand. Finally, NKT’s large backlog provides strong visibility into future revenue and earnings in an industry where projects are large, complex, and often span several years. With a high voltage order backlog exceeding EUR 10 billion, supplemented by additional commitments and preferred supplier agreements, NKT benefits from predictable demand, greater pricing discipline, and confidence that its expanding production capacity will be utilized for many years to come. Overall, I believe there are many things to like about NKT, and buying shares at the Margin of Safety price of DKK 337 could potentially prove to be a good long term investment.

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