Buy recommendation reaffirmed (Ebioss Energy)
08 Dec 16
Buy recommendation reaffirmed TARGET CHANGE CHANGE IN TARGET PRICE€ 2.12 vs 3.79 -44.0% We have updated our model following the company's new strategy with the integration of its Chinese partner. As the growth development and international focus of the company has not changed, a solution for financial support going forward with many projects simultaneously, while avoiding shareholder dilution, is a positive for both the company and investors, even if the process pushes expected revenues further ahead in time. We maintain a positive view on the group backed by our Buy recommendation as its specialised product development and know-how gives them a technological advantage over competitors, recently confirmed by the projects signed in the UK. CHANGE IN EPS2016 : € -0.09 vs 0.00 ns 2017 : € 0.00 vs 0.09 ns Due to the push forward in time of many projects under development, we have revised downwards our top-line expectations for the years to come, mainly driven by lower revenues negatively affecting our EPS estimations. Nonetheless, a lesser need of capital for future investments implies that lower financial expenses will be incurred and this partially offsets the downward pressure at the bottom-line. CHANGE IN NAV€ 1.97 vs 3.31 -40.4% Driven by the results release and the new business plan, we have revised downwards our top-line earnings expectations, which negatively impact our SOTP valuation. The negative effect has been partially offset by a decrease in expected net debt as the lighter capital model after the agreed strategic partnership provides a better financial flexibility for the company. CHANGE IN DCF€ 3.91 vs 6.99 -44.1% Following the half-year results and the new guidance provided following the agreement with its Chinese partner, we have lowered our earnings expectations and the operating cash flow for the coming years, negatively affecting our DCF valuation. However, under the new structure with less capital required for new projects in terms of debt and investment, we have also reduced capex expectations, partially offsetting the negative effect.
Interesting partnership signature for future project development
31 May 16
Ebioss has achieved a strategic partnership agreement with the China Energy Engineering Corporation Limited International Company. After long discussions, the two-year agreement (with similar renewable terms) has been signed based on the following conditions and for projects with at least a 15% ROE: • China Energy Engineering would be responsible for turnkey projects under an Engineering Procurement & Construction contract (EPC). • China Energy Engineering would provide 75% of the required capex through Chinese or international banks, while supporting the projects with at least 50% of the required equity. Either Ebioss or third-party partners will provide the remaining stakes. • China Engineering Company would exclusively use the Ebioss technology (EGT) for all the projects involving Ebioss (a €258m project pipeline). • Following previous models, 60-70% of the required equipment would be produced in China, with no technology or property transfer as the use of the model is a patented process. Moreover, the groups are creating a combined engineering team in order to analyse and develop future projects with the required combined due diligence; Ebioss will provide the projects within Europe and China Energy Engineering would provide the ones in Asia and especially China.
Target upgrade by 22.4% (Ebioss Energy)
31 May 16
TARGET CHANGE CHANGE IN EPS2016 : € 0.00 vs 0.00 +371% 2017 : € 0.09 vs 0.10 -6.63% Reported net income loss is better than expected, supported by top-line performance (revenues and earnings) above expectations, although lower on the adjusted side from lower impairment charges. Moreover, the removal of Conecta2 from the holding after the divestment of the company has no effect on 2016 estimates but slightly impacts the EPS of the group from 2017 as that was the year when the net income of the company was expected to push into positive territory. CHANGE IN NAV€ 3.31 vs 1.72 +91.9% The rollover of 2018 estimates into our model positively affects or SOTP valuation, driven by higher earnings expectations across all business units as the international footprint gains momentum with the acceleration of the commissioning of third-generation gasification units, offsetting the divestment of Conecta2 (which had little impact on the NAV due to its low earnings contribution). CHANGE IN DCF€ 6.89 vs 5.77 +19.3% After the inclusion of 2018 estimates, we have maintained our CAGR at 5% from 2018 onwards driven by positive expectations on new project developments that may arrive from the Chinese partnership agreement, supporting growth forecasts. Moreover, we have normalised capex expectations in line with the growth objectives and increased the expected invested budget as we believe a higher capex will be needed (including maintenance charges) to finance the growth forecasts. Also, the divestment of Conecta2 Energia positively affects margins (driven by the low margins provided) and has a positive effect on WCR as electricity trading requires high levels of cash to enforce output contracts in the wholesale market. Both effects combined create a positive impact and an upward revision in our DCF valuation.