Metlen Energy & Metals — A new name for its next phase

Metlen is a global industrial and energy company, operating in two main business segments: energy and metallurgy. It is at the forefront of the energy transition as an integrated utility (gas trading, power generation and distribution), while having a fully vertically integrated green metallurgy business. These businesses are highly synergistic and deal with energy in many forms (aluminium smelting is highly energy intensive and aluminium is sometimes referred to in the industry as ‘solid electricity’). Metlen’s competencies across the entire value chain mean that it can exploit synergies between its different business sectors.

Metlen’s assets are low cost and low carbon. Its aluminium operations are in the first quartile of the cost curve and are the largest fully integrated aluminium assets in Europe. It has continued to strengthen its backward integration recently by purchasing additional bauxite operations and continues to extend its production of recycled aluminium. Its gas-fired power plants in Greece are highly efficient and among the lowest cost in Greece due to its leading position in gas trading and regasification access in Greece. It has significantly accelerated its renewable energy sources (RES) business in recent years so that it now accounts for 31% of FY24e EBITDA, driven by a strong pipeline of solar projects in Europe and globally. Metlen continues to leverage synergistic links between these businesses and its activities include power infrastructure development, including in the UK market.

Metlen currently trades at P/E multiples of 7.7x in FY24e and 7.2x in FY25e. It trades at EV/EBITDA ratios of 6.0x in FY24e and 5.6x in FY25e (our estimates are broadly in line with consensus), a significant discount to peers. As a comparison, its peer group trades at a range of multiples, from 5.2x for metals to 9.7x for RES, with an FY24 Metlen EBITDA-weighted average of 7.7x, a 38% premium to Metlen’s market multiple. In our view, Metlen’s multiple looks low for a business that has high-quality, low-cost assets in power generation and aluminium production, and very low for a company with a high-growth renewable energy business that accounts for almost one-third of its earnings. We value Metlen at €49/share (up from €45 in our last update). Our DCF valuation has risen to €47/share after incorporating recent results and some minor adjustments to earnings based on commodity, energy and electricity price assumptions, which are broadly in line with forward curves, and we now blend this with a peer multiple valuation of €51/share to reflect the potential of peer re-rating with an additional listing.

Metlen exceeded €1bn in EBITDA in 2023, with our estimates (and consensus) now viewing this as a milestone in its secular growth rather than a cyclical peak. In its recent AGM, management provided guidance for EBITDA of €1.0–1.2bn in FY24 and net profit over €600m (up to c €700m). Our updated forecasts are in line with this guidance (FY24 EBITDA €1.103bn, net income €662m).

We forecast a 10% CAGR in EPS from FY23 to FY25. The balance sheet remains strong (1.1x net debt/EBITDA in FY24e, and 1.0x net debt/EBITDA in FY25e, both excluding non-recourse debt) and debt costs remain relatively low (for example Metlen raised a seven-year, €500m bond in July 2023, with 91.2% subscribed to by retail investors and a yield of 4%).

In our view, the key risks for Metlen are fluctuations in in commodity prices (alumina/aluminium and natural gas in particular) and exchange rates.

Metlen announced on 25 April that as part of its strategic review, it is considering a potential international listing on the LSE within the next 12–18 months. If it proceeds, it would demonstrate a strong vote of confidence in the UK market, as well as fitting with its international growth ambitions.

Inclusion in market indices is dependent on a number of factors, but a simple ranking by earnings and market capitalisation for Metlen indicates that it would be in the 100 largest listed firms. By our estimates (and based on available data from LSEG on 10 June), Metlen would rank around 90th in relation to market cap, c 55th by EBITDA and c 50th by net earnings (before exceptionals).

Metlen’s earnings exposure would be relatively unique, with integrated aluminium operations, fully integrated power generation and distribution operations in Greece, and a growing global RES business. It would provide investors with an opportunity to invest in a combination of assets with high levels of synergies between multiple business activities. Importantly, its RES business (unlike many UK-listed investment trusts) is linked to a strongly cash-generative industrial base, so is not dependent on raising further capital, which has proved difficult for some trusts when trading at discounts to net asset value.

In our view, the overall relative position of its market cap versus its earnings reflects a re-rating potential and this also holds when comparing Metlen to a relevant peer group. If we assume Metlen were to be viewed as an industrial firm, we can compare it to a subsection of the market. As of 10 June (data from LSEG) in terms of market capitalisation, at £4.48bn (€5.32bn), Metlen would rank among the top 20 industrial listed companies, being most similar in size to IMI. However, when considering EBITDA as the key metric, Metlen’s £886m (€1.01m) would place it 13th, just below DCC, which also has an energy business focused on energy solutions and the energy transition and is therefore Metlen’s closest competitor in the UK with regard to its energy business (especially its M Renewables and construction of solar portfolios business).

The charts above plot EBITDA and net income versus market cap for firms classified as industrials within the UK’s largest 100 firms. The relationship is somewhat loose (there are a wide variety of firms in this category, including airlines), but it does indicate that Metlen (highlighted by a circle) looks below the trend in terms of market cap to EBITDA and net earnings relationships.

If Metlen is successful, it would be the first newly listed firm to immediately join the LSE’s top companies since Deliveroo’s IPO in 2021, against the recent trend of large names, such as Flutter, CRH and DS Smith, away from LSE listings through either moving to the US or via buyouts from private equity firms.

Metlen’s business has continued to expand its presence in the UK. In January, it celebrated its 10-year milestone of active and ongoing operation in the UK. Some of the UK companies with which Metlen is working closely include LightSource BP, GE Vernova, Gresham House, Vodafone, Centrica and Quinbrook, as well as government organisations such as National Grid and Scottish Power, as an integrated developer. As of January 2024, Metlen has a total of 82 projects in its portfolio, with a total contract value of €2.5bn in the UK alone.

Looking specifically at the renewable energy arm of its UK operations, Metlen has a portfolio of solar projects with a total capacity of 1.25GW. The Cleve Hill project, an engineering, procurement and construction (EPC) contract signed with Quinbrook Infrastructure Partners, is the largest licensed solar park in the UK, with total capacity of 373MW. The contracted value amounted to £114m and the project will produce 374GWh of renewable electricity per year. Metlen has an additional 650MW of owned assets, which are currently in various stages of development and implementation. At the end of Q124, 45% of Metlen’s Power Projects business total pipeline was directly connected to the UK, amounting to c €800m, further enhancing its aspirations to increase its operations in the UK.

Metlen can also be considered a potential market leader in the UK regarding the EPC of battery energy storage systems (BESS) with 732MW/1.18GWh of projects, which account for 30% of the UK market. The majority of this is being built for its long-term business partner Gresham House. To put this in perspective, on 18 April 2024, Gresham House Energy Storage Fund (GRID, see our latest note), which is the UK’s largest BESS operator with regard to assets under management, released a trading statement, which confirmed that its operational capacity had increased to 740MW/864MWh, and was expected to increase to 1.07GW/1.70GWh by the end of 2024.

Metlen’s association with market leaders is therefore not only in the BESS market segment but also in solar photovoltaic (PV), and its involvement in the construction of the UK’s first high-capacity east coast subsea link (see below) demonstrates Metlen’s credibility among UK market leaders, as well as its ability as an EPC contractor.

In December 2023, Metlen, in consortium with GE Vernova, was awarded a £1bn contract, by National Grid Electricity Transmission and SP Transmission, part of SP Energy Networks, to build the UK’s first high-capacity east coast subsea link. The joint venture will oversee the construction of a 525kV, 2GW bipole Voltage-Sourced Converter and HVDC subsea transmission cables from Torness in East Lothian, Scotland to Hawthorn Pit in County Durham, England. The subsea cable will enable the transmission of renewable energy to power more than two million homes across the UK. The cable system is expected to be roughly 190km in length and the design phase began in January 2024, with construction to begin in 2025.

On 29 May, Metlen announced that it had signed two 10-year power purchase agreements (PPA) to provide energy generated from two solar farms in Ireland to Keppel DC REIT’s two Dublin facilities. The solar farms are in Gorey, Wexford, have a combined capacity of 14.28MW and, once completed, will produce c 13.6GWh of renewable electricity per year while displacing 6.250 tonnes of CO2 each year.

In 2023, Metlen completed its first full year of operation under the new organisational structure announced in December 2022. The aim of this transformation was to further develop and enhance the company's competitiveness across all its business activities on an international scale.

Metlen has two core business segments: the energy sector and the metallurgy sector. These segments are connected and complementary, allowing for the creation of valuable synergies.

The key objectives of Metlen's organisational transformation include:

By aligning its organisational structure and strategic focus, Metlen aims to further strengthen its competitiveness and create value for its stakeholders across its complementary energy and metallurgy sectors.

Metlen’s new organisational structure of its energy segment is broken down into five business activities:

Metlen is the largest Greek private company operating across the entire energy spectrum, serving as an integrated energy utility. Its business activities span the full energy value chain. The company engages in the development, construction and operation of thermal power units, renewable energy projects and electric power infrastructure projects. Additionally, Metlen is involved in the retail supply of electricity and natural gas. Beyond its core energy operations, it also offers a range of other competitive energy-related products and services. These include energy efficiency solutions, smart city services and hydrogen infrastructure development. The company's diversified energy portfolio and complementary service offerings position it as a comprehensive provider of energy solutions. Its broad expertise and capabilities allow it to serve the evolving needs of its customers across the energy sector.

Metlen owns an extensive operating thermal and natural gas energy portfolio, with total capacity exceeding 2GW. The company held a significant market share in FY23, accounting for more than 13.5% of Greece's active and licensed installed thermal power generation capacity (in Q124 this increased to 17.4%).

Metlen’s renewable energy division is a global manufacturer and contractor of solar and BESS projects. Its renewable portfolio at end Q124 totalled 0.8GW of installed capacity, with projects spanning Greece and international markets, and is growing strongly organically with a pipeline of 12.0GW (excluding potential projects from the PPC deal) in solar capacity. The development of its RES projects is based on an asset rotation model.

In addition to its own energy assets, Metlen is a leading international EPC contractor. It specialises in executing large-scale, value-added energy projects across a diverse range of sectors, including:

Metlen’s extensive expertise and capabilities as both an energy producer and EPC contractor position it as a comprehensive provider of cutting-edge energy solutions. Its diversified energy portfolio and project delivery services enable it to address the evolving needs of clients and markets on a global scale.

Metlen operates the only fully vertically integrated, bauxite-to-aluminium production facility in Europe. This complex includes:

Metlen's Aluminium of Greece plant has been in continuous operation for over 50 years, with more than 15 years of ongoing developmental progress. This site is now one of the most advanced and efficient aluminium production facilities in the EU. The plant has an annual production capacity exceeding 185,000 tonnes of primary aluminium and 860,000 tonnes of alumina.

On 5 February, Metlen announced that it had secured a prospecting licence from the Ghana Integrated Aluminium Development Corporation (GIADEC) in north-west Africa for the exportation and subsequent extraction of bauxite deposits. The area is estimated to have a geological reserve of 300Mt of bauxite. As the mine is gradually developed, management expects it to reach annual production capacity of 10Mt, which, at the current market price, equates to an annual turnover of $500m. The company's vertical integration is a strategic competitive advantage, allowing it to optimise operations, logistics and production costs across the full value chain.

As part of its organisational transformation, Metlen has established two new strategic subsidiaries to expand its presence in the infrastructure sector, both domestically and internationally. The first subsidiary is METKA ATE, which specialises in construction activities. The second subsidiary is M Concessions, which will serve as Metlen's investment arm for concession projects and public-private partnerships (PPPs), both within Greece and in international markets. By leveraging its construction expertise through METKA ATE and its concessions investment capabilities through M Concessions, Metlen can capitalise on infrastructure projects and PPP opportunities in Greece and across global markets.

Metlen is the largest vertically integrated private company in the electricity and natural gas (utility) sector in Greece. Through its subsidiary, Protergia, Metlen supplies retail electricity and natural gas. Metlen’s energy generation portfolio capacity is greater than 2GW and has a significant share (more than 17.4% in Q124 and 19% at the end of May 2024) of Greece’s electricity supply. By the end of 2024, Metlen is aiming to exceed 30% of Greece’s annual energy consumption in the years to come.

Metlen also imports and trades natural gas, which has strengthened and created further synergies in its power and gas business. Natural gas supply in Greece is through pipeline imports (principally from Turkey) and the regasification of LNG on Revithoussa Island (Metlen is active in LNG imports into Revithoussa and gas supply). The Revithoussa LNG terminal has a nominal regasification capacity of up to 7bcm per year, which is enough to cover Greece’s entire natural gas supply. In addition, Greece has recently commissioned a new LNG terminal (FSRU) in Alexandroupolis, with a nominal regasification capacity of 5.5bcm per year. Metlen has dramatically increased the number of slots it has booked in the Revithoussa terminal, securing 40–50% of Revithoussa’s auctioned capacity over the next four years.

Throughout 2023, natural gas prices in Europe experienced a significant decrease. This has been attributed to both high natural gas inventories in the EU, which were at 80% in mid-January 2023, and milder weather conditions seen throughout the year. Natural gas prices have not yet reverted to pre-Ukraine levels.

Electricity demand stayed at lower levels, recording a decrease of c 2.5% year-on-year. Among other macro pressures, this decline is a result of higher electricity prices since the invasion of Ukraine, which have yet to revert to pre-crisis levels and there is no suggestion that these prices will revert soon. Although Greek electricity prices decreased fairly rapidly at the start of 2023 from the significant highs seen in 2022, by May they had levelled out and remained fairly constant, at roughly double pre-Ukraine levels, for the rest of the year and into January 2024.

Metlen’s power business earns a margin based on three relative competitive advantages: its efficiency in generation assets, its leading position in sourcing gas and its low CO2 output. For more detail, please see our update note published on 21 March 2023.

Metlen’s total Greek power production for FY23, from both thermal and renewable units, totalled 5.7TWh, which corresponds to 11.6% of Greece’s total demand. Looking specifically at the company’s thermal plants, three combined-cycle gas turbine (CCGT) plants and one high-efficiency combined heat and power (CHP) plant produced a cumulative c 5.1TWh, which represented just over 10% of Greece’s interconnected system and 33.2% of production from natural gas plants (up from 25.9% in FY22).

The Nikolaos CCGT plant contributed towards Metlen’s thermal production for the first time in FY23, contributing c 27% of total thermal production for the year. The plant is one of the largest and most efficient in Greece, as well as one of the largest power stations in Europe. It has a total capacity of 826MW and will operate at a thermal efficiency of more than 63%. We expect the plant to play a significant role in growing Metlen’s profitability in future years, due to its high degree of efficiency and flexibility in supplying electricity at competitive prices.

Metlen’s M RES business is a key driver of its growth in the coming years. In Q124, Metlen achieved a record net profit of €158m, an increase of 10% on Q123. This was primarily driven by the performance of its RES business and supported by both electricity generation (which was enhanced by the operation of the new 826MW CCGT) and the consistently robust performance of its metallurgy business.

As can be seen in Exhibit 7, we expect Metlen’s M RES business to be driving factor in the company’s growth in the coming years. For FY24 and FY25, we forecast EBITDA of €342 and €369m respectively. We also forecast that the energy business will make up c 75% of Metlen’s total EBITDA in FY24 and 77% in FY25, at similar levels to FY23 but up from 67% in FY22.

On 11 April, Metlen announced a strategic cooperation agreement with PPC Group for the development of a solar portfolio of up to 2,000MW across four countries: Italy (503MW), Romania (516MW), Croatia (445MW) and Bulgaria (500MW). The value of the deal is estimated to be up to €2bn spread across the next three years. The portfolio consists of a large number of solar projects at various stages of development. Metlen will undertake the development and construction of the projects. Once the projects are completed and connected to the grid, PPC will acquire the projects.

The agreement with PPC Group is an example of Metlen’s Asset Rotation Plan, which allows the company to continue to grow its M Renewables portfolio, despite the current and unfavourable interest rate environment. As a result of the rotation plan, Metlen is able to have a self-funded RES development model, enhanced by its cash-generative operating portfolio, while maintaining low leverage levels and a strong credit profile.

Metlen considers Italy a strategic market for the future growth of its RES business. The country's central location in the Mediterranean, acting as a gateway to other European markets, makes it an ideal hub. Additionally, Italy's geographic and climatic conditions are favourable for both solar and wind power generation projects.

Metlen has an extensive pipeline of projects in Italy with a combined capacity of c 3.6GW, which it plans to complete over the next four years. This pipeline comprises:

Capitalising on Italy's ambitious renewable energy targets and favourable regulatory environment, Metlen aims to become a key player in the Italian PPA market by developing and acquiring wind and solar projects.

Furthermore, Metlen recently celebrated the opening of its new office in Milan, which will serve as the company's headquarters for central Europe. The office employs 120 people, but this number is expected to double by the end of 2024 and reach 400 by 2026.

The average price for aluminium (3M LME) in 2023 decreased by 16% from the previous year to $2,287/t (2022: $2,716/t). In the last two months of 2023, the increase in the aluminium price to $2,382/t was largely driven by a weaker US dollar. The aluminium billet premia declined further in 2023, with the average price standing at $460/t from $600/t at the beginning of 2023. However, the billet premia price has been following an upward trend in 2024, currently at around $600/t, and is expected to further improve throughout the year. Metlen has also hedged its 2024 and 2025 production at higher levels than the current LME price. Metlen’s aluminium business is also benefiting from lower power prices and increased use of renewable energy.

Metlen’s announcement of the prospecting licence from GIADEC and the 100% acquisition of Imerys Bauxites means it has secured a long-term supply for its Aluminium of Greece plant, the largest vertically integrated bauxite, alumina and primary aluminium production unit in the EU. The investment in Imerys also provides Metlen with the possibility of exploring opportunities in the supply of critical raw materials (ie gallium) and rare earths (scandium) to Europe.

After 115 years, Mytilineos announced its decision to rebrand to Metlen Energy & Metals. This move aligns with the company's strategy of establishing a strong international brand identity as its portfolio and operations continue to expand globally. The proposed name change was well received by shareholders, indicating their support for the company's vision and growth plans. The rebranding exercise marks a new era for Metlen, positioning it to capitalise on promising opportunities in the energy and metals sectors globally. Management's outlook included EBITDA in the range of €1–1.2bn for FY24 and net profit over €600m (up to c €700m). The company reiterated its intentions to pursue a listing on the LSE. However, it acknowledged that the process is complex and that it will proceed methodically.

Our primary valuation method has been a 10-year DCF analysis. We are revising this to a 50:50 blended approach of DCF and peer group-based EV/EBITDA to reflect the potential re-rating due to an international listing, as well as to reflect its growing diversity of earnings, with RES accounting for a more significant share. Our DCF valuation is €47.3/share and our peer-group multiple valuation is €50.7/share, with a blended valuation of €49/share.

Our key DCF assumptions include a weighted average cost of capital (WACC) of 7.5% and a 1% terminal growth rate for Metallurgy, Power & Gas (P&G) and Sustainable Engineering Solutions (SES), and 2% for Renewables & Storage Development (RSD). We assume terminal capex (included in terminal cash flow) for the P&G and Metallurgy divisions at 1.5x depreciation. These assumptions are unchanged from our last review. Our revised DCF valuation reflects the recent results and some minor adjustments to earnings based on commodity, energy and electricity price assumptions, which are broadly in line with forward curves. Our DCF valuation has increased from €45/share to €47/share as a result. We cross-check this overall firm DCF against divisional-based DCFs (sum-of-the-parts based, see Exhibit 13).

Please see our most recently published flash note, which covers Metlen’s Q124 results.

As anticipated by management, turnover decreased by 16% year-on-year due to the significant decline in natural gas, electricity and metal prices. Net profit and EPS both increased by 10% year-on-year, reaching €158m (€143m in Q123) and €1.141, respectively. EBITDA also rose by 12% year-on-year to €252m (€225m in Q123), benefiting from the steady profitability growth witnessed in its energy business, particularly in M Renewables. These results led to a substantial strengthening of Metlen's EBITDA margin, which increased by 5.5% to 22%, further confirming the robustness of Metlen's business model, which aims consistently to generate high levels of profitability regardless of energy price fluctuations.

Q124 was a record-breaking quarter for Metlen in terms of profitability levels, primarily driven by M RES, supported by both enhanced energy generation from the operation of the new 826MW CCGT and the continued consistent and robust performance of the metallurgy sector. Metlen's Q124 results demonstrate that it has laid the foundations to consolidate its profitability at levels above €1bn, as it did in its FY23 results, while entering a new phase of strong growth.

Despite the significant decrease in the average 3M LME aluminium price, which was down 9% year-on-year in Q124, Metlen’s Metallurgy business was able to record profitability at similar levels to the record-high levels obtained in Q123, with revenues of €205m (Q123: €225m) and EBITDA of €70m (Q123: €75m). This performance was mainly attributed to Metlen’s management via securing favourable LME prices, the $/€ FX rate and strict cost control. The acquisition of Imerys Bauxite is expected to further enhance the company’s vertically integrated production model.