Albioma had to be the first analysis presented. The company brings forward a strategy that represents the struggle and at the same time the objective of our era: establishing a transition between our old economy based on fossil energies, and the economy of the future which relies on our capacity to produce renewable energies.
By assisting the sugar producers with energy production as well as upgrading old coal power plants, Albioma acts as an intermediary to help local actors handle modern issues and embrace the green wave. Therefore Albioma doesn't just produce and sell green energy, it operates as the reformer of the old model thus fostering the change of production method. Its expansion to French Overseas Territories, Mauritius or Brazil gives the company the legitimacy to embody the renewable energy movement and step up as the starting point to a green transition strategy.
Albioma has many upcoming deadlines and announcement for this end of 2020. We believe the company has reached a crossroads:
- Will growth sustain in the Covid period?
- When will Albioma reach 100% renewable energies and what stake will solar power take in the mix?
- How will Albioma's market handle the coming global recession?
- Will Albioma be able to reach new markets in the near future?
Report link: Albioma ER - October 2020
2019 RECAP
High growth in Financials, facilities Performance
& Energy objectives – an excellent year to rely on;
□ We observed an important increase of the production
capacity due to the new machines and facilities put into service in La Reunion &
Martinique (FOTs, i.e. French Overseas Territories), and Brazil; the new power
plants performed excellently for their first year into service ¤ Slight
increase of the Availability rate:
from 87,9% (2018) to 88,2% (2019) => total energy production increased by
9,1% (941 MW).
□ EBITDA +12% yoy with a revenues
growth of 18%: increasing trend. Biomass
remains the backbone of the activities, especially in France, with Brazil’s
participation still small but growing ¤ Debts
in BS increased with new compliance regulations and upcoming projects in Brazil
and FOTs (biomass conversion & solar transformations) following
2023-horizon strategy.
□ Renewable energies reached 67% of Albioma’s energy mix. Increase of
the production of solar power (+Eneco acquisition); New solar power plants into service in FOTs and new projects for
expansion of biomass to Brazil or conversion of existing facilities underway ¤ IED Compliance upgrade completed for most facilities.
2020 HIGHLIGHTS & Q3 REVIEW
H1 impacted by COVID – Financial and
Operating results show strong resilience;
□ Revenue +1% yoy over the 9 months, with increase in margin – no use made of the
French government COVID package: increase in stock to prevent fuel shortage.
Large cash reserves helped with
flexibility and supplier support (available credit lines remained unused).
Stagnation on the growth of the activity indicates possible difficulties for
the FY revenue generation and the achievement of the superior range of
objectives.
□ Facilities showed strong resilience with operating continuity: activities put
under stress for 6 months and performed really well regarding the context.
Construction and conversion projects
delayed during lockdown but still in line with schedule. Albioma Le Moule 3
still shut down for conversion program. Good performance of facilities in Brazil
but negative impact of Real devaluation.
New objectives stated and confirmed for
the next part of Albioma’s Strategy;
□ 80% renewable
energy on track even with delays. Objective of full biomass energy as fuel in
facilities – imported biomass and green energy production to top up (provides
stability and security to the grid).
□ Expansion of
Albioma’s expertise worldwide w/ the consolidation of existing markets,
continuing Brazil’s development and prospect new markets in Asia & LATAM.
Develop new sources of green energy to increase differentiation and market
shares.
□ Accelerate and
strengthen solar power in France by developing projects and making
selective acquisitions. Keep on providing and proposing innovative solutions.
2020 FY EXPECTATIONS
Albioma reported earnings for Q3 2020 on
Wed, October 28 –
Thus we expect
FY 2020 to be:
Total
Revenue of 520M€ (+3,3% yoy), with Net Income target of 53 M€: strong
recovery given that the activity strongly resisted the global crisis. Management
objectives were reaffirmed on the lower range for FY: 200-210M€ EBITDA2020
& 48-54M€ Net Income2020.
CAPEX assumptions of 120M€ for 2020 and constant increase to 2023 to reach
objectives – debt repayment constant to 11-12% yearly ¤ all
resulting to a slower but continuing growth with EPS2020 1,71 & estimated Dividend2020 0.80
per shares. ROE grows from 8,47% to
9,01%.
Valuation:
Our Target Price of a range of 46-48€ was set regarding several analyses
detailed later. It takes into account the slow growth coming after the global
crisis, enhanced by a strong business model that will accelerate the recovery
and pursue the objectives set by Top Management. The markets already took these
assumptions into account for the stock valuation but we believe there is more
dynamic to integrate into the future forecasts.
For now, given the context of overenthusiasm for promising green companies, we remain prudent as for the coming volatile weeks that could see this target price already rechable. It is then a long run price recommendation with the reality of the H1 2020 activity integrated along with the following assumptions regarding the global economy and therefore the very industry of Albioma for the end of 2020 and so forth.
Projection of fundamentals (click on images for better quality):
 Activities Thermic biomass Biomass market is in high growth, with high
potential in Brazil especially. The biomass production is linked to sugar
campaign: 6 months in France and Mauritius and between 10 to 12 month in Brazil;
solar energy and complement biomass for the full need of sugar industry
partners. Albioma has the objective of coal free facilities for 2023 to comply
with expectations (coal used as a complement energy when sugar campaign is
over). Solar
power Albioma’s share on expansion after Eneco’s acquisition. Solar energy was previously seen as a complement of biomass and now as a new area of investment for the future. It is one of the axis of the strategy set by Management since Albioma is very advanced on the green energy transition in France Overseas Territories. Sales are also secured with LT contracts with EDF, Endesa and GSE.  Graph form Albioma's 2019 Financial Statements * Axes for Growth ¤ Aside
from its objective of 100% of renewable energy produced (exit of coal), the
company plans to take participation in the objective of 50% green energy
consumption for the FOT and the 2030 objective of full energy autonomy. It
provides Albioma credibility and strengthen its position towards industry
partners. ¤ Albioma intends to achieve a great expansion in
Brazil, a high-potential market still underdeveloped and with an increasing
demand (around 200-million inhabitant). It is the biggest sugar producer and
its ‘underdeveloped country’ label allows companies flexibility and incentives
to grow largely. ¤ Albioma is ambitious about its future in the solar
power industry. It plans to dedicate it a great part of its capital expenditure
money in the hope to gain more market share in this industry to provide a
reliable source of complementary revenue. Investment Catalysts
Investment Risks ¤ Stricter
lockdown measures following COVID-19 outbreak could alter the activity in the long run and
delay projects with money already spent. No visibility for H1 2021 regarding
the next measures to adopt. ¤ A difficult
environment regarding Brazilian real
and the current credit rating can
slow future growth in Brazil. It can affect the business security, and the
oppressive atmosphere makes the social environment more likely to inflame and
impact on Albioma’s activities. No visibility regarding the political context
and hostility towards French companies. ¤ Future growth depends on the in-progress project and facility construction. The
characteristics of Albioma’s market environment increase risks with possible
slow-down based on political decisions and heavy social background. Furthermore,
the company has planned several conversion programs for power stations to
comply with new regulations and carbon-free emissions; too much delay could
send warnings to investors regarding the ambitions to project. |
Valuation
The Target Price is estimated using several methods: DCF,
multiple analysis and peer review.
Regarding the Discounted
CashFlow method, it required the most assumptions for the modelling. We
used a Weighted Average Cost of Capital of 5,14%, determined using financial data
available on Reuters such as the Beta
or the risk-free market rate; and calculated data such as cost of equity and
debt. To complete the calculation, we added a growth of 2,46% determined using ROIC and the
retention rate.
Furthermore, the multiple
analysis showed us an increase in the P/E ratio taking an increase in the
share price and a EV/EBITDA slightly decreasing due to net debt decrease and an
improved EBITDA assumed.
The results of these different
methods provided a range of pricing very interesting to stir up our
recommendation, then based on qualitative data. As expected, with a current
market enthusiastic to green profile companies, the proposed pricing isn’t unachievable
in the short run. However, our price recommendation is a long run view taking
for granted the dynamic of the sales’ growth.
The following prices are
propositions backed by the three analysis presented earlier:
- DCF: 48,86 €
- MULTIPLE: 46,71 €
- PEERS: 46,39
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The Blue/Grey Sky scenario analysis provides a different view using different assumptions on growth of sales, capital expenditures and the indebtment rate. We discovered this analogy of the bull/bear scenarios in some ER reports and found this helpful to understand what could drive the pricing up or down taking into account dynamic figures that evolve very quickly. It is also a way to provide guidance taking into accounts different perceptions of the how the economy will behave in the coming month.
The two following scenarios are supported by the Discounting Cashflow analysis, available in the appendix:
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