Neoen Equity Research Report - Q3 2020

 

    Neoen is what professional medias like to call a success story. Since 2008, the company produces and sells renewable energy to multinationals and industrials such as Electricité de France. While big players were encouraged to invest in green energies using subsidies, Neoen applied this trend to its core business model which made it popular and a symbol of the energy transition.

After 12 years, Neoen is in France the first independant renewable energy producer with more than 3GW of production capacity: wind, solar and storage. Costs of production in the solar energy processes are constently decreased, the transportation logistics are getting more and more easy, and this without mentioning the improvement in the storage technologies. Thus, the company has taken quite an interesting place worldwide and is now known to be a reliable partner for self-sufficiency energy strategy and for increasing the Green in the energy mix of countries.

Neoen went public in 2018 at €18 per share in the objective to finance the expansion of its installed capacity to support its continued growth. The company is appealing to investors due to several key strengths: 

• It generates profit since 2011 although it still hasn't announced dividends;

• The growth rates of the last 4 years show a great dynamic, this with future revenues secured by projects awarded or under-construction;

• The current trend of renewable energies ensures a developing market and put the spotlights on Neoen as a fast-growing company;

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This report has been redacted in January using H1 and Q3 official reports. The analysis is based on the 2019 published results with an update on assumptions taking into account the H1 comments and management's objectives and projections.

Over the last quarter, Neoen's share price has skyrocketed to all-time prices never seen before, reaching the difficult objective of €60 and then €70. However, like Albioma, another popular green stock, Neoen has seen an increase of interest and took advantage of the shift in green companies that happened after March 2020. The following analyzes provide assumptions backed by financial modeling and are proposed as an indication of Neoen's range of pricing over the next years following a growth pattern.

Report link:   Neoen ER - January 2021

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Albioma Equity Research Report - Q3 2020

    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?

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This report has been redacted on the weeks after the release of H1 2020 results. The analysis is based on the 2019 published results with an update on assumptions taking into account the H1 comments and management's objectives and projections.

Over September and October, Albioma's share price has been in an interesting dynamic with a uptrend share price momentum reaching its 52-week high of 47,60€. However, the following analyzes provide assumptions backed by financial modeling and are proposed as an indication of Albioma's range of pricing over the next years following an identified growth pattern.

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):

Albioma's stock performance next to SBF 120 reference index:

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