What is Ecoener BME:ENER ?
Ecoener, founded in 1988 by Luis de Valdivia (70% ownership), is a multinational Independent Power Producer (IPP) specializing in renewable energy with a diversified portfolio of assets in hydroelectric, wind, and solar PV technologies. As an IPP, Ecoener builds and owns its assets, which sets it apart from companies like Grenergy, originally an Engineering, Procurement, and Construction (EPC) firm that builds and sells assets (although it has an IPP part now), as well as Solaria, which focuses solely on solar photovoltaic technology. The most comparable peer to Ecoener is Greenalia, another IPP with a similar business model, which was taken private in May of last year.
Initially focused on developing small-scale hydropower plants in Galicia, Spain, Ecoener has evolved significantly over the past three decades to become a major player in the renewable energy sector. As of today, it has 203MW in operation across three technologies (Hydro, Wind, and Solar). With a strong presence in Spain (Galicia and the Canary Islands) and Latin America, Ecoener has expanded its geographical footprint and increased the size of its projects. Currently, it operates in Spain, Honduras, and Guatemala, and has 217 MW of solar PV capacity under construction in the Dominican Republic (156 MW), Colombia, and the Canary Islands. Moreover, the company was recently chosen to build two hydroelectric plants in Ecuador, with a combined capacity of 100 MW.
In May 2021, Ecoener went public on the Spanish stock market (BME Growth), raising around €100 MM (at €5.9) to fund its growth strategy. The company currently has a market capitalization of around €258 MM and trades on the Spanish stock market. A few weeks ago, Ecoener published its 2022 financial results, which showed robust growth as a result of high wholesale prices in Spain, increased wind and solar PV production, and a decrease in hydroelectric production (with a recovery expected in 2023). The net debt increased due to a high level of Capex, but EBITDA growth allowed for a reduction in leverage.
Despite the great results and prospects, Ecoener share price has fallen >30% since its all-time high last year and is trading near its historical lows despite achieving the mentioned record revenues (€73MM) and EBITDA (€44MM) in 2022
Why do we believe that the current Ecoener share price is attractive?
With Ecoener, we followed the same process we always do. We look at which industries, from a macro perspective, may represent an attractive short-to-medium term investment, and then we start analyzing them. In this case, we saw that in the European renewable energy sector is happening similar to other industries (as we commented this week with Italian Wine Brands), due to supply chain issues and cost increases impacted the industry last year, the majority of companies in this sector are trading much cheaper than they did before the pandemic despite of its growth. However, because of the war in Ukraine and high electricity prices, companies are making a fortune (something we expect to remain unusually high for a few years). Consequently, we have started to look into this sector again. In particular, companies with significant exposure to the spot market, and that’s how we saw the great attractiveness of Ecoener. Briefly:
- First, we like the management. Both for the decisions taken in recent years and for its execution capacity & knowledge (Capex, the pace of delivery, etc.) This has been a pain point in our latest renewable energy adventure with Greenalia (which was taken private last May at €17.5).
- Second, multi-technology IPP. It is important to highlight the significance of this point, as there are many PV companies with more installed MW, but it is all about the load factor, and wind & hydro factors are much higher than solar.
- Third, price. Ecoener is trading cheaper than its peers, well below its initial IPO price, and the company is more mature, has a reliable track record after two years of being publicly traded, and has considerably increased its MW in operations in 2022.
- Fourth, prospects for the future. We like several aspects here: Dominican Republic projects coming online this year, bringing 15 years of secured revenue; high electricity prices in Spain for the foreseeable future; expansion towards Eastern Europe and North America, as well as Colombia, Ecuador, and the rest of the capacity coming online; the fact that 80% of its debt is fixed,…
Ecoener Assets and Strategy in detail
Before diving into the assets, it is important to remember that renewable energy projects, once in production, are known for their ability to generate free cash flow for 20-25 years with minimal maintenance. Also, the debt structure is of capital importance, as around 80% of the cost is financed with debt (project finance).
At this moment, Ecoener has 203 MW in production and 217 MW in construction. Ecoener’s renewable energy assets are spread across three main technologies: hydroelectric, wind, and solar PV. The following is a description of the company’s assets, focusing on unique aspects and key figures that complement the provided table.
It is important to mention that in Spain, Ecoener sells the electricity generated by its assets on the spot market (which reached a record in 2022, and we believe that the energy crisis in Europe will put preassure on prices for the foreseeable future), while in Latin America, it sells energy through power purchase agreements (PPAs). Honduras has an indexed $130 (although it should be $165 due to a construction clause in arbitrage), and Guatemala has a non-indexed $67. Furthermore, the 15-year PPA price of $88 for the Cumayasa projects in the Dominican Republic will be online later this year. Besides, it also has PPAs for its new hydro projects in Ecuador at $47/MW
Ecoener has a total of 58.4 MW of hydroelectric assets, with the majority located in Spain (with the exception of 14.2 MW in Guatemala). These assets boast an average load factor of 34%, contributing significantly to the annual energy production. However, last year, due to the severe drought, the performance of the assets was poor.
The company’s wind assets have an installed capacity of 92.7 MW, with the majority in Spain. These wind farms have an average load factor of 38%. More than 3,300 hours per year, a significant difference over solar photovoltaic MW usually has around a 25% load factor (depending on the geography).
Solar PV Assets:
Ecoener has an installed capacity of 52 MW in solar PV assets, with a presence in Honduras and Spain. Its load factor is lower than the other technologies (25%) but quite acceptable with almost 2200 hours per year. Ecoener’s expansion is well-focused on Solar PV, which despite having a lower load factor than wind or hydraulic farms, it has much shorter construction times. In particular, Ecoener has 217 PV MW in construction, which is expected to get online in 2023. The Cumayasa I and II farms (96MW) are particularly important, as their linked PPA will bring €17MM in revenue for the next 15 years.
Evolution and Growth Strategy
Ecoener has come a long way from its small hydro projects in Spain. The company has successfully diversified its portfolio, now operating across three technologies and multiple countries. As part of its growth strategy, Ecoener plans to expand into Eastern Europe, taking advantage of the lack of energy sources detected after the Ukrainian-Russian war.
Quick calculation about Ecoener BME:ENER
Selling the vast majority of its energy on the spot market, Ecoener’s revenue in the next few years will be highly dependent on merchant prices in Spain (they have Canary subsidies and a few regulated parks, but we will delve deeper into that in the full investment thesis).
We have calculated this year’s production based on today’s data, meaning that we are taking the most conservative approach and assuming that all of its assets scheduled to enter production in 2023 do so on December 31, and their production does not count for this year. Also, in a neutral scenario, we would assume an 85% performance and a price of €80/MWh in Spain (the average so far is slightly higher).
We see that these assumptions entail around €115MM revenue over the next 2 years plus the new projects that will come online later in 2024 & 2025. It would represent around €75MM EBITDA in these two years (quick calculation). Having €188MM net debt, it would be trading at <10x EV/EBITDA24, which is significantly lower than its peers (i.e., Grenergy).
In summary, Ecoener is a company that seems attractive to us, follows a similar rationale as some of our latest acquisitions (i.e., Italian Wine Brands), and we will keep diving into this sector in the coming months as we see that it is trading cheaper than in previous years when it was less profitable and with higher risk.
Disclaimer: This analysis is provided for educational purposes only and does not constitute any type of investment advice. Please be aware that the author is a shareholder of the company mentioned, and this may introduce bias towards the company in the analysis.
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