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EBIOSS has reported half-year revenues that contracted 42% to €1.77m as strategic measures had been taken by the company that delayed the invoicing and consolidation of many projects which are either under negotiation or in advanced stages of development. The decrease in revenues also generated a decrease in cost of goods sold (COGS), which have been under control as they contracted by 47.4% to €1.96m. However, an increase of +11.97% in employee benefits, added to a +48% yoy increase in depreciation expenses and a +49% increase in other expenses, have pushed operating profit further into red territory to €-3.5m. In addition, a +106% increase in financial expenses has reduced profit before tax by 22.8% to €-4.3m. With €-1m in losses being attributable to minority interests, then the group posted a net income loss of €-3.22m in the first half of the year (down 34.7%). As a result, given the negotiation delays and the lack of visibility in terms of the expected contract signatures, the group has decided to drop its current business plan and extend the timeline for the capital increase that was supposed to be completed by 12 December 2017. Moreover, EBIOSS Energy is currently in a Reverse Takeover (RTO) negotiations whereby its Irish subsidiary EQTEC plc, held at 50.03% by the company, would buy the Spanish engineering arm for gasification projects (EQTEC Iberia) held also by EBIOSS at 67%. The agreement for the negotiations had been signed on July 2017 and since that date the EQTEC plc shares have been frozen.
Ebioss Energy AD
2016 results within expectations. Strong recovery for 2017: recent developments provide visibility TARGET CHANGE CHANGE IN TARGET PRICE€ 3.32 vs 2.38 +39.9% Following the decision taken at the shareholders meeting and applied in April 2017, the group has changed its share capital nominal value from Bulgarian lev to euro. This measure has generated a euro to Bulgarian lev ratio of 1:1.955. The measure has reduced the number of outstanding shares from 40.91m to 29.91m which has supported our per share valuation metrics. The recent news coming from the signing of the UK project is a positive for investors as it confirms the positive trend in the business plan. It also provides greater visibility in the strong expectations for the coming years in terms of revenue and earnings growth. CHANGE IN EPS2017 : € 0.00 vs 0.00 ns 2018 : € 0.07 vs 0.04 +95.6% The 2016 results were broadly in line with our expectations, hence, no major changes were needed to our estimates. We maintain top- and bottom-line earnings forecasts for the coming years (2017 and 2018) in addition to the inclusion of 2019 into our model. However, the reverse split decision taken in 2017 with a lower number of shares outstanding has a positive effect on our EPS from 2017 onwards. CHANGE IN NAV€ 4.23 vs 1.97 +115% After the 2016 results and the inclusion of EQTEC PLC into the Ebioss holding structure, we have updated our SOTP valuation. The higher earnings expected in the coming years support a higher valuation. Following this, and given that the company's current model is based on a less capital-intensive structure and the recent confirmation of completing of the business plan with the signing of the UK project, we have updated our valuation model with a less cautious approach, as we have applied multiples closer to comparable peers. The positive effect generated by this is supported by a lower number of shares outstanding, creating as a result an upward revision in our NAV expectations. CHANGE IN DCF€ 4.67 vs 3.92 +19.1% Following the publication of the 2016 results, we have added the 2019 forecasts into our model. The good earnings trend should have a positive effect on the group’s operating cash flows and, consequently, on our DCF valuation. Moreover, the lower number of shares outstanding has generated a positive effect on per share values, increasing also our DCF valuation.
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.
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 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.
