Power & gas, the growth engine of Mytilineos

Mytilineos 22 July 2019 Update
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Mytilineos

Power & gas, the growth engine of Mytilineos

H1 preview and focus on power & gas

General industrials

22 July 2019

Price

€11.26

Market cap

€1,609m

Net debt (€m) at 31 December 2018

390

Shares in issue

142.9m

Free float

73.4%

Code

MYTI

Primary exchange

ASE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

13.2

17.2

28.5

Rel (local)

10.1

5.1

13.6

52-week high/low

€11.3

€6.7

Business description

Mytilineos operates three main businesses: metallurgy (aluminium/alumina production), power & gas (power production/supply and gas trading) and large-scale infrastructure EPC. The company operates in 29 countries across Europe, the Middle East and Africa and has a workforce of 2,700 employees.

Next events

H1 results

12 September 2019

Nine-month trading update

30 October 2019

Analyst

Dario Carradori

+44 (0)20 3077 5700

Mytilineos is a research client of Edison Investment Research Limited

We expect H119 results to show strong EBITDA growth for the group (up 23% yoy), with the power & gas business a key driver (EBITDA up almost three times yoy). We see several growth opportunities in the Greek power and gas market for Mytilineos and the election results may accelerate its growth plans. Furthermore, we believe the recently announced construction of a new power plant is likely to achieve high returns and drive further growth. Despite the recent re-rating, the stock remains attractively priced, offering 12–14% pa free cash flow yield in FY19–22e.

Year end

EBITDA*
(€m)

Net income*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

299

143

1.02

0.32

11.0

2.8

12/18

290

137

1.01

0.36

11.7

3.2

12/19e

360

207

1.43

0.50

7.8

4.4

12/20e

346

198

1.38

0.48

8.1

4.3

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

Strong competitive positioning and structural growth

Power & gas represents a growing proportion of the group’s earnings (26% of FY19e EBITDA) and we believe is well positioned to grow in the Greek market. The low-cost, low-carbon generation fleet, efficiency of the plants and the ability to source gas at attractive terms positions Mytilineos’s gas-fired plants at the low end of the thermal plant cost curve. We expect the market to increasingly focus on Mytilineos’s leading role in the Greek gas market (it imports >30% of the country’s gas) and its ability to import LNG at attractive prices without being locked in expensive oil-indexed contracts. In addition, we believe the evolving energy policy following recent elections may provide Mytilineos with more room for growth in electricity supply and power generation (lignite closures would push volumes and margins up for Mytilineos). In the medium term, the announced construction of a new gas-fired plant would drive significant growth and attractive returns (19% IRR).

Strong power & gas key driver for the group’s H1

Following weak FY18 results for Mytilineos’s power generation business (due to mild weather and high hydro volumes), we expect power & gas EBITDA to grow 293% y-o-y to €48m in H119, driving 23% y-o-y growth for the group to €178m. Growth for the division is supported by increasing power demand in Greece (+3.9% January to May 2019), increasing market share for Mytilineos in both power generation and supply, and higher margins (spark spreads up, thanks to lower gas costs and higher carbon). Our full year forecasts are broadly unchanged.

Valuation: More room for a re-rating

Mytilineos’s stock performed well in H119 (+39%), helped by a large country risk reduction (the Greek-German 10-year bond yield spread reduced by 45% in H1). However, valuation metrics appear undemanding with an FY19e P/E of 7.8x and EV/EBITDA of 5.6x, at a large discount to EU diversified industrial groups. The free cash flow yield of 12–14% pa in FY19–22e remains an attraction. Our unchanged SOTP value of €12.3/share does not include the value of the new CCGT project (we preliminary estimate NPV of €1.9/share or +16% to our valuation).

Power & gas is key driver of 2019 EBITDA growth

We expect the power & gas business to recover strongly in 2019 and forecast that its expansion will be a key driver of growth. Mytilineos will report H1 results on 12 September 2019. We forecast EBITDA for the business to grow almost three times in H119, thanks to higher volumes and margins, and driving most of the 23% H1 group EBITDA y-o-y growth. In this note, we focus on the drivers of the strong competitive position of this business, which represents a growing proportion of the company’s earnings, as well as the trends supporting its growth outlook, especially in light of the evolving energy policy in Greece following the recent elections. In particular we see Mytilineos’s leading role in the Greek gas market as a key driver of the position of the company’s gas plants at the bottom end of the thermal cost curve – we expect H1 results to confirm that gas sourcing at attractive terms is boosting power generation’s profitability. Furthermore, we estimate the recently announced construction of a new 826MW combined cycle gas turbine (CCGT) (24% larger than previously expected) will generate a project IRR of 19% (base case) and will add €60m/year to our EBITDA forecasts and €29m to our net income forecasts for the group. We estimate the value created by the project (not included in our base case valuation of €12.3/share) at €1.9/share or 16% of the base-case valuation. We expect the project to receive the remaining formal authorisations in the next few months at which point we will include it in our forecasts. Our FY19 and FY20 forecasts are therefore broadly unchanged.

Exhibit 1: Power & gas represent 26% of FY19e group EBITDA

EBITDA adjusted (€m)

2017

2018

2019e

2020e

2021e

2022e

Metallurgy

124

166

182

157

164

165

Power & gas

75

64

95

101

111

122

EPC & Infrastructure

89

55

83

88

93

98

Others

11

5

0

0

0

0

Total

299

290

360

346

369

385

% y-o-y growth

(3%)

24%

(4%)

7%

5%

Source: Company data, Edison Investment Research

Power & gas to drive strong H1 growth for the group

Following a weak FY18 result for Mytilineos’s power generation business (due to mild weather and high hydro volumes in Greece), we expect strong recovery to be the key driver for the group’s EBITDA growth. We introduce H119 estimates and forecast EBITDA for power & gas to grow 293% y-o-y to €48m (vs €12m in H118), driving 23% y-o-y growth for the group to €178m. Our forecasts are based on the following points:

Greek power demand recovered strongly, with consumption in the five months from January to May up 3.9% y-o-y, according to the system operator IPTO.

Higher spark spreads: the decline of gas prices and the increase in carbon prices in H119 have reduced the production costs for gas-fired plants, but increased the costs for lignite plants in Greece. As a result, the profit margins for Greek gas plants have increased and the margins for lignite plants have decreased. Importantly, the ability of Mytilineos to source gas at increasing discounts to Greek wholesale levels has allowed the company to position its plants at the low end of the cost curve (Exhibit 5).

Exhibit 2: Mytilineos’s profit margins for gas-fired power plants on the rise

Source: Edison Investment Research based on company data

Higher volumes: based on data from grid company IPTO, we calculate that thermal power production for Mytilineos continued to grow strongly, up 24.7% y-o-y to 2.15TWh in the five months from January to May (+23.4% y-o-y in Q118).

Exhibit 3: Load factors for Mytilineos’s CCGT plants

Source: IPTO, Edison Investment Research. Note: CCGT = combined cycle gas turbine.

Higher electricity supply market share: the market share of Mytilineos in the supply business continues to grow significantly as state-owned PPC loses ground (Exhibit 4).

Exhibit 4: Greek electricity suppliers’ market share

Source: IPTO

Strong competitive positioning in Greek energy market

We believe Mytilineos’s power & gas business is well positioned to capture growth opportunities in the Greek market. We highlight what we believe are the key strengths of its competitive positioning:

Mytilineos has a track record of sourcing gas internationally at a discount to wholesale prices. Mytilineos is one of the largest Greek gas players, importing over 30% of Greek gas (1.3bcm via pipeline and LNG in 2018) with both long-term contracts and spot purchases. In particular, we believe the active company presence on the LNG market should allow it to capture short-term trading opportunities in increasingly volatile European gas markets. The Greek gas market is still dominated by Russian oil-indexed gas and wholesale prices are generally at a premium to most other European countries. In the long term, plans for the transformation of Greece into a gas hub (which would help reduce Europe’s dependency on Russia’s gas supply) would provide additional business opportunities for Mytilineos, which already is a leading player in the market.

Mytilineos owns and operates relatively low-cost gas plants in a market dominated by old and expensive coal plants. It is the second largest power producer in Greece, behind state-owned PPC. Mytilineos owns two CCGT plants (total consolidated capacity of 881MW, of which Mytilineos’s share is 728MW), a 334MW CHP plant, which supplies steam to the metallurgy business, and a significant wind portfolio (210MW including 35MW coming on stream by the end of 2019). In addition, the company announced the intention to commission a new 826MW CCGT plant by the end of 2021.

Mytilineos’s gas-fired power plants have high efficiency (c 58% efficiency for the two existing CCGTs, which is the highest in the country at present according to Mytilineos). The new CCGT will have a thermal efficiency of 63%, the highest in Europe.

We believe the low cost of the gas utilised, efficiency of the plants and low emissions vs lignite plants are the key drivers of the position of Mytilineos’s plants at the low end of the cost curve for Greek power generators.

Exhibit 5: Cost curve for Greek thermal power generators in Q119

Source: Company data. Note: Protergia is 100% owned by Mytilineos while Korinthos Power is 65%-owned. AVG SMP: Average system marginal price.

Evolving energy policy post elections

On 7 July, the centre-right New Democracy party won the Greek general elections and achieved an absolute majority in the parliament with 158 seats (out of a total of 300). We believe recent comments by new Prime Minister Kyriakos Mitsotakis suggest that one of the key priorities of the new government will be energy policy and the role of state-owned power incumbent PPC. We believe this may have significant positive implications for Mytilineos’s power business as a result of the changes in the competitive landscape. Currently, the key challenges for PPC are the unfavourable economics of its lignite-fired power plants as a result of the large increase in the price of carbon emissions, as well as a large amount of overdue receivables (€2.4bn at the end of FY18). PPC posted a 45% y-o-y reduction in EBITDA in FY18 and a €542m net loss. In the 2018 annual report PPC’s certified auditor Ernst & Young raised concerns about sustainability of the company’s operations (‘existence of a material uncertainty, which may cast significant doubt on the company’s and the group’s ability to continue its operations as a going concern’). The negative trend for PPC continued in the first quarter of 2019, with an EBITDA loss of €51m (vs +€157m in Q118) and a net loss of €205m (vs €13m net loss in Q118).

Ahead of the elections, New Democracy submitted a proposal to the EU Commission about how it would deal with PPC’s financial situation if it won. New Democracy proposed a three-stage rescue plan for PPC focused on cost cutting (including job cuts), receivables recovery, sale of hydro/lignite assets to third parties, reducing PPC’s market share to below 50% and, eventually, the entry of a strategic partner (see Energypress.eu, 24 June 2019). While it is too early to take a view on the new government’s ability to implement drastic changes (previous governments have resisted plant closures in order to safeguard employment), we believe the new political landscape increases the likelihood that market-based solutions are adopted. If this is the case, there are two areas where we believe Mytilineos could significantly benefit:

1.

A reduction of PPC supply market share to below 50% (as previously agreed by the Greek government with the EU) would provide significant room for growth for Mytilineos’s supply business.

2.

If loss-making lignite plants were closed, we see potential for both a power price effect (a tighter market would push power prices/spreads up) and a volume benefit for Mytilineos (higher load factors for gas plants). In the longer term a smaller lignite fleet would require new investments in modern thermal plants as well as renewables, which Mytilineos is well positioned to implement, from both a financial and technical point of view.

We believe the new Greek government will need to tackle energy policy issues early on its mandate, so the coming quarters may provide significant catalysts for Mytilineos.

Structural growth for Mytilineos’s gas plants

Lignite plants face significant regulatory and economic challenges

Lignite plants in Greece have a capacity of 3.9GW, producing 16TWh and representing c 30% of Greek power generation (FY18). These are old plants (mostly built in the 1970–80s) with high carbon emissions (responsible for >30% of total Greek carbon emissions, according to WWF) and face significant regulatory and economic challenges:

EU directives (the Large Combustion Plant and Industrial Emissions directives) place significant restrictions on the operation of lignite plants although the Greek government (a majority shareholder in PPC) has so far resisted plant closures in order to safeguard employment.

Plants face unfavourable economics as the cost of carbon emissions rises (Exhibit 9) and as Greek lignite is very low-quality (hence much more expensive) compared to the rest of Europe. Lignite plants are already generally more expensive than gas plants, as shown in Exhibits 5, 10 and 11.

Exhibit 6: Share of Greek lignite in country’s electricity mix likely to fall

Source: IPTO, Edison Investment Research

PPC has announced the closure of 1,212MW of lignite capacity by 2021 amid challenging market and regulatory conditions, and environmental concerns. In addition, the Amyntaio power plant (330MW) is likely to close due to environmental restrictions (it is already operating in breach of EU regulations as of 2019). Were these plants to close, assuming no new thermal capacity comes on line and even assuming a large pick-up in renewable investments, our Greek power market model indicates a significant reduction in power reserve margins (ie the difference between the available capacity of the plants and the peak demand of the system), indicating a situation of undersupply and the need for a large increase in gas plant utilisation (see Exhibits 7 and 8).

Exhibit 7: Load factor for Greek gas plants

Exhibit 8: Greek electricity reserve margins

Source: IPTO, Edison Investment Research. Note: Based on existing installed capacity.

Source: IPTO, Edison Investment Research

Exhibit 7: Load factor for Greek gas plants

Source: IPTO, Edison Investment Research. Note: Based on existing installed capacity.

Exhibit 8: Greek electricity reserve margins

Source: IPTO, Edison Investment Research

Exhibit 9: EU ETS carbon price growth puts pressure on lignite plants’ profitability

Source: Refinitiv

Exhibit 10: Greek power generation merit order, 2019e

Exhibit 11: Greek power generation merit order, 2025e

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 10: Greek power generation merit order, 2019e

Source: Edison Investment Research

Exhibit 11: Greek power generation merit order, 2025e

Source: Edison Investment Research

New CCGT investment makes strategic and economic sense

On 17 July 2019, Mytilineos announced that it will start the construction of a new 826MW CCGT plant (24% larger than initially planned) in Aghios Nikolaos, in the Voiotia region of Central Greece. The plant will be equipped with a GE H-class gas turbine with a thermal efficiency of 63%, the highest in Europe, and the total investment is expected to be €300m. The construction is expected to start in Q4 of 2019, provided a construction licence is granted, and should be commissioned by Q4 of 2021.

Because of the favourable environment for gas plants in Greece, we view the announcement positively, as this plant would likely achieve high load factors (the company expects to run it at a baseload level, ie throughout the year without many interruptions) and increasing spreads as the market tightens.

In our base case (70% load factor, €14/MWh achieved clean spark spread) we estimate a 19% project IRR for Mytilineos’s CCGT plant project and annual contributions of €60m to group EBITDA and €29m to net income (16/12% of 2022e group EBITDA/net income). Based on the same assumptions we preliminarily estimate an NPV for the project of €274m or €1.9/share (16% of our valuation of €12.3/share). We provide a project IRR sensitivity to higher and lower load factors and achieved spreads in Exhibit 12.

Exhibit 12: Project IRR sensitivity for new 826MW CCGT

Load factor

55%

65%

70%

75%

80%

Achieved clean spark spread

10

8%

11%

12%

13%

15%

12

11%

14%

16%

17%

19%

14

14%

17%

19%

21%

23%

16

17%

21%

23%

26%

28%

18

20%

25%

27%

30%

33%

Source: Edison Investment Research. Note: Assuming a €300 investment and a €15m/year flexibility payment.

Greek renewable investment plan offers growth opportunities

In 2018, the previous Greek government launched a large renewable investment plan, which targets wind and solar additions for a total capacity of 2.6GW (equivalent to c 15% of the country’s current total installed capacity and c 50% of current renewable capacity) requiring investment of €2.5–3.0bn. The projects are assigned through tender auctions in the period 2018–20 (300MW/year for both wind and solar and two 400MW technology-neutral auctions where wind and solar compete against each other). The first auction was carried out in July 2018 (average price €70/MWh) and the second one in December 2018 (€59/MWh). It is unclear at this stage how the new government will deal with this renewables plan, but we believe renewable investments are a key part of the solution to Greece’s energy challenges. We see significant renewable investment opportunities for Mytilineos, although we recognise that historically renewable projects were subject to significant delays as a result of a complex authorisation process. As an indication of profit potential, an extra 100MW in the period 2018–20 would generate an additional c €10m/year EBITDA and a project IRR of 9%, on our estimates.

Gas procurement as a key competitive advantage

As shown in Exhibit 13, Mytilineos has built a track record of sourcing gas internationally at prices at a discount to Greek wholesale levels. We identify the following drivers:

Mytilineos is one of the largest Greek gas players, importing >30% of Greek gas (1.3bcm via pipeline and LNG in 2018), with both long-term contracts and spot purchases. Its strong presence on the market allows it to capture short-term trading opportunities. The ability to consume large quantities of gas relatively quickly (thanks to CCGTs often running baseload, together with a high and stable consumption profile for the CHP plant used for the alumina refinery) allows the company to import significant gas quantities (the Revithoussa LNG terminal has strict storage time constraints for gas imported at the terminal).

Mytilineos has not locked itself into (currently expensive) long-term oil-indexed gas import contracts, but maintains large exposure to (currently lower) spot gas prices. We believe this is a good position for the company as, in our view, the current situation of global LNG oversupply could persist for years if Asian countries do not increase demand quickly enough to absorb all the new supply from Australia and the US. The Greek gas market is still dominated by expensive Russian oil-indexed gas and wholesale prices are generally at a premium to most other European countries. The ability to import cheaper spot gas has material implications for gas-fired power plant profitability, in our view.

Long-term plans for the transformation of Greece into a gas hub as part of the efforts to reduce the EU’s reliance on Russian gas would provide additional business opportunities for Mytilineos. The ongoing construction of the TAP pipeline will significantly increase gas imports into Greece, bringing an additional 1bcm to the country (start of TAP operations is scheduled for 2020). Longer term (likely not before 2025), the announced plan for the construction of the $7bn Israel-Cyprus-Greece-Italy pipeline, which has a planned capacity of 20bcm/year, would confirm the role of Greece as a key access point for gas for the EU.

Exhibit 13: Mytilineos’s gas price vs Greek gas price

Source: Company data

Forecasts overview: 18% EBITDA CAGR for power

In Exhibit 14 we provide an overview of the forecasts for the power & gas business. Our forecasts are broadly unchanged (higher assumed volumes and spreads for the existing plants are offset by lower assumed flexibility payments; group FY19–22 EBITDA changes by less than 1%). We assume a moderate expansion in margins (all-in clean spark spread, including plant restart payments, of around €10/MWh in 2019, growing to €12/MWh in 2022) and a gradual increase in gas plant load factors (as the market tightens), additional remuneration to compensate plants for providing flexibility to the market (a permanent mechanism is under evaluation by the EU, we assume €15m/year) and 30MW/year wind additions.

Overall, we expect an 18% EBITDA CAGR in 2018–22e, excluding the contribution from the new CCGT plant. We view our forecasts for the power & gas business as conservative because, although we have included a gradual increase in margins and load factors, we have not included the full impact of the lignite closures (large increase in spreads and gas-fired production), due to current uncertainty on the timing of the shutdowns. As a sensitivity, we estimate that a ±€5/MWh change in spreads would increase or decrease EBITDA by 6%.

Exhibit 14: Overview of key forecasts for Mytilineos’s power generation business

2018

2019e

2020e

2021e

2022e

2023e

Gas installed capacity

MW

881

881

881

881

881

881

Wind installed capacity

MW

176

211

241

271

301

331

Total installed capacity

MW

1,057

1,092

1,122

1,152

1,182

1,212

Gas production

TWh

3.7

4.4

4.5

4.6

5.0

5.0

Wind production

TWh

0.3

0.5

0.6

0.7

0.7

0.8

Total production

TWh

4.0

4.9

5.1

5.3

5.8

5.8

Gas achieved clean spark spreads (incl. restart payments)

€/MWh

11.5

12

12.5

13

13.5

14

Flexibility payments

€m

6

12

12

15

15

15

Wind achieved power price

€/MWh

87

84

80

78

75

73

EBITDA

€m

64

95

101

111

122

127

o/w gas plants

€m

39

54

56

63

70

72

o/w windfarms

€m

18

32

35

38

41

43

o/w electricity/gas supply

€m

7

9

10

11

12

12

Source: Company data, Edison Investment Research. Note: Excludes CHP plant (economic contribution included in Metallurgy business) and new CCGT project.

In exhibit 15 we set out a sensitivity analysis to show what would be the impact of the inclusion into the power & gas business of the new CCGT power plant from the last quarter of 2021, with EBITDA CAGR FY18-FY22e increasing to 30% (from 18%).

Exhibit 15: Power & gas sensitivity: key forecasts including new CCGT plant from 2021

2018

2019e

2020e

2021e

2022e

2023e

Gas installed capacity

MW

881

881

881

1707

1707

1707

Wind installed capacity

MW

176

211

241

271

301

331

Total installed capacity

MW

1057

1092

1122

1978

2008

2038

Gas production

TWh

3.7

4.4

4.5

5.9

10.1

10.1

Wind production

TWh

0.3

0.5

0.6

0.7

0.7

0.8

Total production

TWh

4.0

4.9

5.1

6.6

10.8

10.9

Gas achieved clean spark spreads (incl. restart payments)

€/MWh

11.5

12

12.5

13.2

13.8

14.0

Flexibility payments

€m

6

12

12

18

25

25

Wind achieved power price

€/MWh

87

84

80

78

75

73

EBITDA

€m

64

95

101

126

182

187

- o/w gas plants

€m

39

54

56

78

130

132

- o/w windfarms

€m

18

32

35

38

41

43

- o/w electricity/gas supply

€m

7

9

10

11

12

12

Source: Company data, Edison Investment Research. Note: Excludes CHP plant (economic contribution included in Metallurgy business).

Valuation: 12-14%% pa free cash flow yield

The power & gas business represents 27% of our EV for the group based on a sum-of-the-parts, mostly DCF-based. The valuation implies 6.9x 2019e EV/EBITDA, which we believe is broadly consistent with thermal power utilities in Europe (see our initiation report Cash flow miner, growth generator, published on 15 April 2019). Looking at the value per unit of capacity installed, gas-fired plants are valued at €0.74m/MW and wind plants at €1.24m/MW, using an 8.5% WACC.

A recent transaction may be seen by investors as providing a valuation benchmark for gas-fired plants, but we believe that looking at EV/MW for this transaction may be misleading. Italy’s Edison and Greece’s Hellenic Petroleum recently acquired a 22.74% stake in Elpedison for €20m from HED and Elvahalcor, increasing their respective stakes to 50% and 50%. The transaction suggests an enterprise value of Elpedison (which has two gas-fired plants with total 810MW capacity and 150,000 gas supply clients) at c €280m, implying a rather low €0.34m/MW (even attributing zero value to the supply portfolio). However, we note that the transaction (for a minority stake) appears to reflect a lower profitability for the assets than for Mytilineos, which likely justifies a low valuation on a per MW basis. Looking at 2018 (a low profit year for gas-fired plants in Greece), the valuation of Elpedison implies 12x 2018 EV/EBITDA, vs c 9x 2018 EV/EBITDA implied by our valuation for Mytilineos’s gas plants (or 6.4x 2019e EV/EBITDA). Hence, considering the difference in profitability, the EV/MW implied by the transaction does not provide a fair valuation benchmark for Mytilineos assets, in our view.

More room for share price appreciation

Mytilineos’s stock performed very well in H119 (+39% to 30 June), helped by a large reduction in country risk (the spread between Greek and German 10-year bond yields reduced by 45% in H1). However, despite the recent recovery, valuation metrics appear undemanding, with an FY19e P/E of 7.8x and EV/EBITDA of 5.6x, at a large discount to diversified European industrial groups. Free cash flow yield of 12–14% pa (pre growth-capex) in FY19–22e remains a key attraction, in our view.

Our valuation of €12.3/share (unchanged) implies further upside to the current share price. This valuation does not include the value created by the recently announced CCGT project, which, based on our initial calculations, would add €1.9/share (or 16%) under the assumptions explained above. Furthermore the recent reduction in Greek country risk, if it persists, would provide further upside risks to our valuation. As for sensitivity, a 1% reduction to the WACC we currently use (8.5%) would push our valuation up by 16%.

Exhibit 16: Sum-of-the-parts valuation for Mytilineos

FY19e, €m

EV

EBITDA

EV/EBITDA

Comment

Metallurgy

970

182

5.3

DCF, 8.5% WACC, 0.5% terminal growth rate

Power & gas

653

95

6.9

– Gas-fired plants

357

56

6.4

DCF, 8.5% WACC

– Wind

262

32

8.3

DCF, €1.24m/MW

– Supply

35

7

5.0

5x EV/EBITDA multiple

EPC & Infrastructure

806

83

9.7

DCF, 8.5% WACC, 0.5% terminal growth rate

Total EV

2,429

360

6.8

 

– net debt

(306)

– provisions

(30)

– minorities

(54)

+ associates

24

Discount

15%

Equity

1,753

Number of shares (m)

142.9

Value per share (€)

12.3

Source: Edison Investment Research

Exhibit 17: European diversified industrial companies

Company

Country

Market cap (€m)

P/E (x)

EV/EBITDA (x)

EV/sales
(x)

Dividend yield (%)

FCF yield* (%)

FY0

FY1

FY2

FY0

FY1

FY2

FY1

FY1

FY1

FY2

Siemens

Germany

83,681

14.5

14.1

12.5

9.7

9.9

9.1

1.2

3.8%

6.0%

7.6%

Wartsila Oyj

Finland

6,563

14.4

13.8

12.4

10.7

9.3

8.7

1.3

4.3%

6.7%

7.6%

Smiths Group

UK

6,886

17.7

16.6

15.1

11.3

10.8

10.2

2.1

2.8%

4.6%

5.9%

Turkiye Sise ve Cam Fabrikalari

Turkey

1,793

4.9

6.4

5.1

5.6

5.8

4.7

1.2

NA

NA

NA

Conzzeta

Switzerland

1,241

16.3

14.8

14.4

5.6

5.8

5.5

0.6

2.4%

6.8%

7.4%

Indus Holding

Germany

840

12.0

10.2

9.2

6.7

6.2

5.8

0.8

4.3%

6.6%

8.9%

Volati

Sweden

431

10.3

12.4

10.1

12.0

7.2

6.7

0.9

2.3%

8.4%

11.0%

Kitron

Norway

182

16.2

12.4

10.5

11.7

8.8

7.9

0.8

4.0%

NA

11.3%

Median

14.4

13.1

11.5

10.2

8.0

7.3

1.0

3.8%

6.7%

7.6%

Mytilineos

Greece

1,609

11.7

7.8

8.1

7.1

5.6

5.8

0.9

4.4%

8.6%

9.8%

Source: Refinitiv, Edison Investment Research. Priced as of 19 July 2019. Note: *After growth capex.

Exhibit 18: Financial summary

Accounts: IFRS, year-end: December, €m

 

 

2016

2017

2018

2019e

2020e

2021e

2022e

INCOME STATEMENT

 

 

 

 

 

 

 

 

 

Total revenues

 

 

1,246

1,527

1,527

2,237

2,373

2,668

3,017

Cost of sales

 

 

(972)

(1,143)

(1,150)

(1,774)

(1,918)

(2,187)

(2,516)

Gross profit

 

 

274

384

376

463

455

482

501

SG&A (expenses)

 

 

(76)

(86)

(88)

(98)

(103)

(107)

(110)

R&D costs

 

 

(0)

(0)

(0)

(0)

(0)

(0)

(0)

Other income/(expense)

 

 

24

1

(4)

(5)

(5)

(6)

(6)

Exceptionals and adjustments

 

0

6

(6)

0

0

0

0

Depreciation and amortisation

 

(74)

(73)

(79)

(83)

(87)

(89)

(89)

Reported EBIT

 

148

232

198

276

259

279

295

Finance income/(expense)

 

(57)

(43)

(38)

(14)

(9)

(4)

3

Other income/(expense)

 

(6)

(7)

1

1

1

1

1

Exceptionals and adjustments

 

0

0

0

0

0

0

0

Reported PBT

 

 

85

182

161

264

250

276

299

Income tax expense (includes exceptionals)

 

 

(21)

(24)

(24)

(58)

(53)

(55)

(60)

Reported net income

 

 

61

158

133

206

198

221

239

Basic average number of shares, m

 

 

117

142.9

142.9

142.9

142.9

142.9

142.9

Basic EPS, €/share

 

 

0.3

1.08

0.99

1.43

1.38

1.54

1.66

Adjusted EBITDA

 

 

222

299

290

360

346

369

385

Adjusted EBIT

 

 

148

226

204

276

259

279

295

Adjusted PBT

 

 

85

175

167

264

250

276

299

Adjusted net income

 

 

64

143

137

207

198

222

240

Adjusted EPS, €/share

 

 

0.29

1.02

1.01

1.43

1.38

1.54

1.66

Adjusted diluted EPS, €/share

 

 

0.29

1.02

1.01

1.43

1.38

1.54

1.66

DPS, €/share

 

 

0.00

0.32

0.36

0.50

0.48

0.54

0.58

Adjusted EBIT margin

 

 

12%

15%

13%

12%

11%

10%

10%

BALANCE SHEET

 

 

Property, plant and equipment

 

 

1,073

1,137

1,142

1,165

1,159

1,151

1,143

Goodwill

 

 

209

209

209

209

209

209

209

Intangible assets

 

 

243

236

235

235

235

235

235

Other non-current assets

 

 

326

282

272

272

272

271

271

Total non-current assets

 

 

1,851

1,864

1,858

1,882

1,875

1,867

1,859

Cash and equivalents

 

 

198

161

208

192

199

221

242

Inventories

 

 

257

159

184

184

184

184

184

Trade and other receivables

 

 

800

1,018

1,059

1,138

1,226

1,323

1,440

Other current assets

 

 

1

16

32

32

32

32

32

Total current assets

 

 

1,257

1,354

1,483

1,547

1,642

1,760

1,898

Non-current loans and borrowings

 

 

429

599

534

434

334

234

134

Other non-current liabilities

 

 

360

298

375

368

360

353

346

Total non-current liabilities

 

 

789

897

909

802

694

587

480

Trade and other payables

 

 

571

575

608

669

736

810

891

Current loans and borrowings

 

 

388

130

64

64

64

64

64

Other current liabilities

 

 

76

184

198

198

198

198

198

Total current liabilities

 

 

1,035

890

871

932

999

1,072

1,153

Equity attributable to company

 

 

989

1,377

1,508

1,641

1,769

1,912

2,067

Non-controlling interest

 

 

295

54

53

54

55

56

57

CASH FLOW STATEMENT

 

 

Profit for the year

 

 

64

158

144

206

198

221

239

Taxation expenses

 

 

21

24

23

58

53

55

60

Net finance expenses

 

 

48

42

38

13

9

3

(3)

Depreciation and amortisation

 

 

76

76

81

83

87

89

89

Other adjustments

 

 

(9)

(9)

(7)

(25)

(25)

(25)

(25)

Movements in working capital

 

 

(90)

(38)

(68)

(19)

(21)

(23)

(36)

Interest paid / received

 

 

(48)

(32)

(31)

(13)

(9)

(3)

3

Income taxes paid

 

 

(14)

(6)

(18)

(58)

(53)

(55)

(60)

Cash from operations (CFO)

 

 

48

214

162

244

238

261

267

Capex

 

 

(103)

(127)

(85)

(106)

(81)

(81)

(81)

Acquisitions & disposals net

 

 

1

1

20

0

0

0

0

Other investing activities

 

 

5

9

18

18

18

18

18

Cash used in investing activities (CFIA)

 

 

(97)

(117)

(47)

(88)

(63)

(63)

(63)

Net proceeds from issue of shares

 

 

0

0

0

0

0

0

0

Movements in debt

 

 

87

(81)

(128)

(100)

(100)

(100)

(100)

Dividends paid

 

 

(3)

(5)

(46)

(72)

(69)

(77)

(83)

Other financing activities

 

 

(41)

(48)

106

0

0

0

0

Cash from financing activities (CFF)

 

 

43

(134)

(68)

(172)

(169)

(177)

(183)

Increase/(decrease) in cash and equivalents

 

 

(6)

(37)

47

(16)

7

22

21

Cash and equivalents at end of period

 

 

198

161

208

192

199

221

242

Net (debt) cash

 

 

(618)

(568)

(390)

(306)

(199)

(78)

43

Movement in net (debt) cash over period

 

 

50

178

84

107

122

121

Source: Company data, Edison Investment Research

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This report has been commissioned by Mytilineos and prepared and issued by Edison, in consideration of a fee payable by Mytilineos. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Mytilineos and prepared and issued by Edison, in consideration of a fee payable by Mytilineos. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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