Keeps going and growing

KTG Energie 16 February 2016 Update

KTG Energie

Keeps going and growing

Trading statement

Alternative energy

16 February 2016

Price

€10.03

Market cap

€72m

Net debt (€m) at April 2015

132

Shares in issue

7.2m

Free float

47.7%

Code

KB7

Primary exchange

Xetra

Secondary exchange

Frankfurt

Share price performance

%

1m

3m

12m

Abs

(0.5)

(9.3)

(15.5)

Rel (local)

3.2

5.5

0.6

52-week high/low

€13.21

€9.70

Business description

KTG Energie develops and operates biogas facilities. The output is sold under the German renewable energy law at subsidised rates.

Next events

FY15 results

February 2016

H116 results

September 2016

Analysts

Catharina Hillenbrand-Saponar

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

KTG Energie is a research client of Edison Investment Research Limited

KTG Energie (KTG) has released a solid trading statement for FY15, giving an encouraging outlook that underpins our expectation of 31% EPS CAGR for 2015-18. We expect the company to continue to take advantage of both organic and external growth opportunities as it cements its position in the biogas sector. KTG stands out as one of very few profitable biogas developers and, according to management, is well set up for the highly leveraged balance sheet. We will update our forecasts and valuation (currently €18) after the release of full financial statements later this month.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

10/13

54.3

2.7

0.27

0.40

37.1

3.9

10/14

73.3

4.0

0.43

0.45

23.3

4.4

10/15e

87.0

6.8

0.57

0.50

17.6

5.0

10/16e

100.4

9.3

0.75

0.55

13.3

5.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Solid FY15 results

KTG has reported a solid FY15 trading statement that confirms our expectation of the company’s growth trajectory. Revenues were €92.7m vs our forecast of €87m. EBITDA came in at €25m (Edison €26.2m), EBIT at €13.3m (€15.6m) and net income at €2.05m (€3.9m). These preliminary numbers do not yet fully include the 7.5MW Brandenburg acquisition announced in June 2015 (due to a dispute with the administrator), although we have included the acquisition in our forecasts. The underlying like-for-like (l-f-l) EBITDA margin of 33% was above our expectation. It shows the company’s strength in executing on its business strategy to drive margin expansion by continuous operating performance improvement.

Positive FY16 growth outlook

For 2016, management guides for revenues of at least €90m and EBITDA of €28m on the basis of its existing asset base. Our forecast of €100m revenues and €31m of EBITDA for FY16 reflect c 5MW of plant growth. Our EBITDA margin assumption of 31% is in line with the company’s guidance. We think there will be opportunities for organic growth and attractive acquisitions as the biogas sector continues to consolidate, exemplified by the last acquisition, which was at very favourable terms. The proceeds from the 2015 capital raise are likely to have been used for these initiatives. We expect the company to continue to build on its stable growth, according to plan. We note an improvement in the equity/total assets ratio from 10% to 13% year-on-year (y-o-y), although the balance sheet remains highly geared.

Valuation: Unchanged at €18/share

We value KTG using a three-stage DCF methodology based on long-term normalised assumptions (risk-free rate 4.0%, equity risk premium 4.5%, 35% equity ratio). We will revisit our valuation (unchanged at €18 per share) after the release of full FY15 results.

FY15 trading statement

KTG reports solid trading for FY15. At €92.7m, revenues were above our expectations due to higher than-expected trade revenues. EBITDA came in at €25m (Edison €26.2m), EBIT at €13.3m (€15.6m) and net income at €2.05m (€3.9m). However, the company quotes underlying plant revenues of €75m. This implies an EBITDA margin for the core biogas plants of 33%, which is better than expected. In addition, the 7.5MW Brandenburg acquisition (announced in June 2015) was not included in the results, whereas we have included the acquisition in our forecasts. We understand that due to a dispute with the administrator from which KTG made the acquisition, the assets have not been fully consolidated and are thus not yet included. Full consolidation would have lifted reported EBITDA and EBIT level with our forecasts. Management has confirmed that KTG has an installed plant base of more than 63MW including the acquisition (or 60MW l-f-l), which is in line with our 64MW estimate for FY15. We will reassess our assumptions surrounding the acquisition after the release of full financial statements later this month.

Management has reiterated that it will not require additional cash to service debt as it can use proceeds from refinancing through KfW loans, as per its declared business strategy. We continue to see the balance sheet and cash flow situation as unchanged. The strong operational cash flow will be absorbed by growth capex, leaving a highly leveraged balance sheet with a debt/total assets ratio of 63% (FY15). The financial structure reflects KTG’s project financing approach, yet we point out our unchanged view that it may entail risk relating to interest rates and refinancing at corporate level. We acknowledge a y-o-y improvement in the equity/total assets ratio from 10% to 13%, even though that might deteriorate again if and when the company uses funds for growth and acquisition initiatives.

Exhibit 1: FY15 results and FY16 outlook

€m

FY15A

FY15 Edison forecast

FY16 guidance (l-f-l)

FY16e Edison forecast

Revenues

92.7

87.0

>90

100,392

% chge

26.4%

18.7%

15.3%

EBITDA

25.05

26.24

28

31,468

% chge

14.0%

19.4%

19.9%

EBITDA margin

27.0%

30.1%

31.1%

31.3%

EBIT

13.3

15.6

EBIT margin

14.3%

17.9%

% chge

10.9%

30.2%

Earnings

2.05

3.90

% chge

10.4%

110.1%

Source: KTG Energie and Edison Investment Research

For FY16, management guides for revenues in excess of €90m and EBITDA up to €28m on an l-f-l basis. This implies a 31% EBITDA margin, which is in line with our expectations. Our forecast is above the l-f-l guidance, at €100m revenues and €31m EBITDA, as we include additional growth over and above the current asset base. We expect 5MW of incremental capacity growth for FY16e. As the company continues to optimise plant performance, we expect continuous margin expansion towards a long-term level, around 33%. We will revisit our forecasts and valuation after the release of the full accounts.

Exhibit 2: Financial summary

€000s

2013

2014

2015e

2016e

2017e

2018e

Oct

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

54,308

73,325

87,044

100,392

108,563

116,011

Cost of Sales

(27,433)

(32,218)

(38,212)

(44,173)

(47,768)

(51,045)

Gross Profit

26,875

41,106

48,832

56,220

60,795

64,966

EBITDA

 

 

13,218

21,968

26,236

31,468

34,272

38,215

Operating Profit (before amort. and except.)

7,985

11,994

15,619

19,083

21,865

25,893

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

(264)

0

0

0

0

0

Other

0

0

0

0

0

0

Operating Profit

7,720

11,994

15,619

19,083

21,865

25,893

Net Interest

(5,320)

(7,931)

(8,841)

(9,780)

(10,222)

(9,775)

Other financial items

(1)

(71)

0

0

0

0

Profit Before Tax (norm)

 

 

2,665

3,992

6,778

9,303

11,644

16,118

Profit Before Tax (FRS 3)

 

 

2,400

3,992

6,778

9,303

11,644

16,118

Tax

(1,077)

(1,369)

(2,876)

(3,948)

(4,941)

(6,840)

Profit After Tax (norm)

1,587

2,623

3,901

5,355

6,702

9,279

Profit After Tax (FRS 3)

1,323

2,623

3,901

5,355

6,702

9,278

Average Number of Shares Outstanding (m)

6.000

6.125

6.825

7.150

7.150

7.150

EPS - normalised (c)

 

 

26.46

42.8

57.2

74.9

93.7

129.8

EPS - normalised fully diluted (c)

 

 

26.5

42.8

57.2

74.9

93.7

129.8

EPS - (IFRS) (c)

 

 

22.0

42.8

57.2

74.9

93.7

129.8

Dividend per share (c)

40.0

45.0

50.0

55.0

65.0

80.0

Gross Margin (%)

49.5

56.1

56.1

56.0

56.0

56.0

EBITDA Margin (%)

24.3

30.0

30.1

31.3

31.6

32.9

Operating Margin (before GW and except.) (%)

14.7

16.4

17.9

19.0

20.1

22.3

BALANCE SHEET

Fixed Assets

 

 

158,048

177,787

197,670

202,785

205,378

193,056

Intangible Assets

862

783

783

783

783

783

Tangible Assets

157,184

177,002

196,885

202,000

204,593

192,270

Investments

2

2

2

2

2

2

Current Assets

 

 

50,260

60,475

68,631

80,541

82,936

100,917

Stocks

11,474

17,430

20,673

17,911

18,976

20,278

Debtors

28,657

33,677

34,756

49,428

50,758

53,580

Cash

8,971

8,302

12,137

12,137

12,137

25,993

Other

1,157

1,065

1,065

1,065

1,065

1,065

Current Liabilities

 

 

(5,678)

(10,036)

(6,673)

(8,107)

(8,396)

(8,892)

Creditors

(5,678)

(10,036)

(6,673)

(8,107)

(8,396)

(8,892)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(182,720)

(203,125)

(225,712)

(239,361)

(241,291)

(241,823)

Long term borrowings

(134,190)

(145,509)

(167,697)

(180,886)

(182,319)

(182,319)

Other long term liabilities

(48,529)

(57,616)

(58,015)

(58,475)

(58,972)

(59,504)

Net Assets

 

 

19,910

25,100

33,915

35,858

38,627

43,258

CASH FLOW

Operating Cash Flow

 

 

5,852

14,317

16,074

17,504

27,721

28,279

Net Interest

(5,320)

(7,931)

(8,841)

(9,780)

(10,222)

(9,775)

Tax

0

0

0

0

0

0

Capex

(23,273)

(31,512)

(30,500)

(17,500)

(15,000)

0

Acquisitions/disposals

(6,558)

0

0

0

0

0

Financing

0

15,538

7,670

0

0

0

Dividends

0

(2,400)

(2,756)

(3,413)

(3,933)

(4,648)

Net Cash Flow

(29,299)

(11,988)

(18,354)

(13,188)

(1,433)

13,856

Opening net debt/(cash)

 

 

75,309

125,219

137,207

155,560

168,748

170,181

HP finance leases initiated

0

0

0

0

0

0

Other

0

(0)

0

0

0

Closing net debt/(cash)

 

 

125,219

137,207

155,560

168,748

170,181

156,325

Source: KTG Energie and Edison Investment Research. Note: Under German GAAP, assets are valued at acquisition costs. IFRS would mark assets to market and thereby lead to higher net assets.

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Germany

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United Kingdom

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US

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New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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