From pure photovoltaics towards "integrated light storage": Credit Suisse is bullish on Nextpower's acquisition of Prevalon, maintaining an "outperform" rating.

Notice that Nextpower (NXT.US) is deepening its business layout beyond photovoltaic tracking systems through the acquisition of battery energy storage company Prevalon. BNP Paribas stated that this strengthens the company's position as a broader participant in the growing "PV + storage" market. The bank maintains its "outperform" rating on Nextpower and raises its target price from $177 to $182. The institution sees this acquisition as a catalyst for revenue growth and market diversification, and as Nextpower expands its role in the renewable energy and power infrastructure markets, its valuation multiples are expected to increase. Nextpower has agreed to acquire Prevalon for $3.65 billion, which is a joint venture between Mitsubishi Electric and EES for battery energy storage systems (BESS). BNP Paribas analyst Moses Sutton stated that this transaction represents the continuation of Nextpower's strategy, evolving from a pure PV equipment supplier to a more diversified power infrastructure company. Sutton wrote in a research report, "Acquiring Prevalon represents the continuation of the strategic transition from 'Nextracker' to 'Nextpower'." He believes that this transaction expands the company's exposure in the energy storage sector and enhances its attractiveness to investors who are seeking investment opportunities in the growing demand for electricity from AI and data centers. Business expansion beyond photovoltaics This acquisition solidifies Nextpower's position in the rapidly growing battery energy storage market. Currently, battery energy storage is increasingly used in conjunction with PV projects to enhance grid reliability and shift generation to peak demand periods. BNP Paribas compared Prevalon to Fluence Energy (FLNC.US), one of the largest publicly traded battery energy storage suppliers, but the bank pointed out that while Prevalon's scale is about a quarter of Fluence's, its profitability is stronger. According to the institution, Prevalon currently has a pre-tax depreciation and amortization profit margin of about 10%, while Fluence has a negative margin. Sutton stated that Nextpower's existing relationships with project owners, developers, and engineering, procurement, and construction (EPC) contractors will help accelerate Prevalon's growth. The analyst also pointed out that Nextpower's strong balance sheet is a competitive advantage in the energy storage sector, as projects in this sector typically require significant working capital investment. Growth seen as more important than concerns about profitability margins Some investors may question whether adding a lower-margin energy storage business will dilute Nextpower's profitability, as the company's historical EBITDA profit margin has exceeded 20%. BNP Paribas stated that this concern overlooks larger strategic opportunities. Sutton believes that while Prevalon's profit margin is lower than Nextpower's core PV tracking business, the acquisition improves the company's long-term growth prospects, diversifies revenue sources, and reduces reliance on policy subsidies in the PV market. This move may also help alleviate concerns among investors about the future growth of PV core companies after the expiration of federal tax credits. "More important than a percentage of profit margin is the improvement in financial growth projections, the transition of NXT's business from 'pure PV' to diversified, and the support of valuation multiples," Sutton wrote. The analyst noted that management has mentioned reaching a battery energy agreement with a top-tier large-scale data center customer, highlighting the increasingly close connection between power infrastructure investment and AI-related power demand. Opportunities for data center energy storage may be overestimated While BNP Paribas remains optimistic about the long-term prospects of energy storage systems, Sutton expressed caution about the deployment of batteries directly behind data center meters (customer side). Nextpower estimates that by 2030, the US behind-the-meter battery storage market could reach around $30 billion annually, equivalent to about 12 gigawatt hours (GWh) of demand. This forecast is slightly higher than BNP Paribas' estimate of $15 billion to $20 billion, but significantly lower than some investors' assumptions of $50 billion to $100 billion. Sutton stated that this gap underscores the importance of grid-connected front-of-meter energy storage projects, rather than systems solely installed in data centers. As evidence, he pointed out Prevalon's reported orders for 1.3 gigawatts (GW) of Hybrid Power Stabilizers, all of which are related to grid-connected applications, not data center projects behind the meter.