KTG Energie — Update 26 April 2016

KTG Energie — Update 26 April 2016

KTG Energie

Analyst avatar placeholder

Written by

KTG Energie

Steady strength defies sector challenges

Forecast update

Alternative energy

26 April 2016

Price

€9.46

Market cap

€68m

Net debt (€m) at end October 2015

136

Shares in issue

7.2m

Free float

47.7%

Code

KB7

Primary exchange

Xetra

Secondary exchange

Frankfurt

Share price performance

%

1m

3m

12m

Abs

(0.9)

(14.8)

(22.1)

Rel (local)

(5.2)

(19.4)

(10.6)

52-week high/low

€13.21

€8.79

Business description

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

Next event

H1 results

July 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

Another amendment to the German renewable energy law could provide opportunities for KTG, either through sector consolidation or additional support for its plant. While we still see margin expansion, we have reduced our EBITDA margin forecast following the publication of the full annual report to reflect guidance more closely. On this basis, FY16e EPS declines to €0.67 (€0.75). Our fair value of €18/share remains unchanged as lower working capital requirement compensates.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

10/14

73.3

4.0

0.40

0.45

23.7

4.8

10/15

92.8

4.6

0.40

0.50

23.7

5.3

10/16e

100.4

8.2

0.67

0.55

14.1

5.8

10/17e

107.9

10.0

0.82

0.65

11.5

6.9

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

Draft renewable energy law amendment

The German cabinet has approved a first draft on the upcoming renewable energy law (EEG) amendment. The mature technologies, ie wind and large solar, are to move from automatic feed-in tariffs to tender mechanisms from 2017. Biogas will not be included in the new tender process. There is still debate as to whether existing biogas plants should have the possibility to tender for follow-on subsidies after their 20-year feed-in tariff under previous EEGs expires.

KTG is well positioned in any scenario

Whatever the outcome of the support debate, it would appear that KTG is well positioned. If the tender mechanism fails to gain approval, acquisition opportunities and/or sector consolidation may arise. If a tender mechanism is introduced, either for new plant or for existing plant as follow-on support, KTG should be a beneficiary. Tenders for new capacity would be very competitive. Given KTG’s feedstock advantage through its parent company relationship, it should be able to bid very competitively into new tenders. That should support capacity growth for KTG. Follow-on tenders would add further years of return that we have currently not factored into our estimates.

Update to our forecast

We have slightly tempered our implied EBITDA margin to 31% and now forecast EBITDA of €29.1m (from €31.5m), in line with management guidance. This feeds through to a decline in our EPS forecast to €0.67 (from €0.75). We forecast a net cash outflow of €7.4m in FY16 and net debt of €144m at end FY16.

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). Our €18/share fair value remains unchanged.

Well positioned for the future

Debate on support is a positive

The German cabinet has approved a first draft on the upcoming renewable energy law (EEG) amendment. The EEG regularly gets amended in order to update feed-in tariffs and build-out targets in order to take into account rapid change in the sector in Germany. The mature technologies, ie wind and large solar, will move from a regime governed by automatic feed-in tariffs to tender mechanisms from 2017. This was expected and has been mentioned in previous bills. Biogas will not be included in the new tender process.

There is scope for further amendments to the draft bill before it gets passed by parliament. The annual new build cap for biogas could get reduced from 150MW to 100MW pa of new build. There is also debate as to whether existing biogas plants should have the possibility to tender for follow-on subsidies after their 20-year feed-in tariffs under previous EEGs expires. At the moment, there is no provision for any follow-on regimes for plant that see their EEG guarantees expiring. The industry lobby is pushing for such subsidies, given the upcoming end of subsidies for a number of older installations. We gather that this is a way to keep plant open that would otherwise have to shut. However, at this stage, there is no provision for this in the bill. We understand from management that, whatever the outcome of the debate and whether or not there will be follow-up support for old plant, it opens opportunities for KTG. Under current power prices of €22/MWh, biogas would not be viable without support. Consequently, if no provisions for tenders for old plant were to be included in the final bill, it could bring acquisition opportunities for KTG and/or could lead to sector consolidation. Conversely, if tenders were to be brought in, KTG would benefit for its first-generation plants and in the longer term for the later rounds of new build. That would be a significant positive; already written-off plant would receive additional guaranteed returns.

Updates to our forecast

Following the publication of the company’s full annual report, we have updated our model. We forecast FY16 revenues of €100m, with capacity growth the prime driver of our 8.2% y-o-y increase. Our EBITDA forecast declines slightly as we have tempered our margin forecast. We now forecast €29.1m of EBITDA for FY16 (from €31.5m). This implies a 31% underlying (excluding non-electricity revenues) EBITDA margin, which is in line with management’s guidance for like-for-like (ie prior to new capacity growth) implied EBITDA margins. Our net interest has decreased as a result of lower net debt. Nevertheless, because of the reduction in EBITDA and EBIT, our FY16 EPS forecast decreases to €0.67 (from €0.75). We have reduced our capex estimates as we have now seen evidence that the company can deliver growth at lower than initially expected levels of capex. Our 2016 capex forecast is now €15.0m (from €17.5m). As interest and a high dividend pay-out still exceed free cash flows, we forecast a net cash outflow of €7.4m for this year. This, however, is a substantial improvement from our previous forecast of an outflow of €13.2m. The key factor for this is a lower working capital requirement than our previous estimate. With that, we estimate net debt of €144m at the end of FY16.

Exhibit 1: EPS forecast changes (€)

2015

2016e

2017e

EPS old (2016/17)

0.40

0.75

0.94

EPS new

0.67

0.82

Source: KTG Energie and Edison Investment Research

Exhibit 2: Financial summary

€000s

2014

2015

2016e

2017e

2018e

Year end 31 October

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

73,325

92,813

100,386

107,919

115,203

Cost of Sales

(32,218)

(42,256)

(45,174)

(48,564)

(51,841)

Gross Profit

41,106

50,557

55,212

59,356

63,361

EBITDA

 

 

21,968

25,016

29,097

31,311

35,100

Operating Profit (before amort. and except.)

11,994

13,296

17,179

19,410

23,261

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Other

0

0

0

0

0

Operating Profit

11,994

13,296

17,179

19,410

23,261

Net Interest

(7,931)

(8,733)

(8,948)

(9,368)

(9,341)

Other financial items

(71)

(4)

0

0

0

Profit Before Tax (norm)

 

 

3,992

4,558

8,231

10,042

13,920

Profit Before Tax (FRS 3)

 

 

3,992

4,558

8,231

10,042

13,920

Tax

(1,369)

(1,792)

(3,417)

(4,169)

(5,778)

Profit After Tax (norm)

2,623

2,767

4,814

5,874

8,143

Profit After Tax (FRS 3)

2,623

2,767

4,814

5,874

8,142

Average Number of Shares Outstanding (m)

6.500

6.837

7.174

7.174

7.174

EPS - normalised (c)

 

 

40.3

40.5

67.1

81.9

113.5

EPS - normalised fully diluted (c)

 

 

40.3

40.5

67.1

81.9

113.5

EPS - (IFRS) (c)

 

 

40.3

40.5

67.1

81.9

113.5

Dividend per share (c)

45.0

50.0

55.0

65.0

80.0

Gross Margin (%)

56.1

54.5

55.0

55.0

55.0

EBITDA Margin (%)

30.0

27.0

29.0

29.0

30.5

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

16.4

14.3

17.1

18.0

20.2

BALANCE SHEET

Fixed Assets

 

 

177,787

191,917

194,999

198,098

186,259

Intangible Assets

783

783

783

783

783

Tangible Assets

177,002

191,132

194,214

197,313

185,474

Investments

2

2

2

2

2

Current Assets

 

 

60,475

55,293

61,923

67,924

84,327

Stocks

17,430

17,498

18,317

19,292

20,594

Debtors

33,677

27,069

32,880

37,905

42,191

Cash

8,302

9,662

9,662

9,662

20,477

Other

1,065

1,065

1,065

1,065

1,065

Current Liabilities

 

 

(10,036)

(6,663)

(7,027)

(7,554)

(8,064)

Creditors

(10,036)

(6,663)

(7,027)

(7,554)

(8,064)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(203,125)

(205,905)

(213,858)

(220,502)

(221,078)

Long term borrowings

(145,509)

(145,925)

(153,275)

(159,380)

(159,380)

Other long term liabilities

(57,616)

(59,980)

(60,582)

(61,122)

(61,698)

Net Assets

 

 

25,100

34,642

36,037

37,965

41,444

CASH FLOW

Operating Cash Flow

 

 

14,317

27,152

20,016

22,209

24,819

Net Interest

(7,931)

(8,733)

(8,948)

(9,368)

(9,341)

Tax

0

0

0

0

0

Capex

(31,512)

(16,706)

(15,000)

(15,000)

0

Acquisitions/disposals

0

0

0

0

0

Financing

15,538

1,987

0

0

0

Dividends

(2,400)

(2,756)

(3,419)

(3,946)

(4,663)

Net Cash Flow

(11,988)

943

(7,351)

(6,104)

10,815

Opening net debt/(cash)

 

 

125,219

137,207

136,263

143,614

149,718

HP finance leases initiated

0

0

0

0

0

Other

0

(0)

(0)

(0)

(0)

Closing net debt/(cash)

 

 

137,207

136,263

143,614

149,718

138,903

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.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by KTG Energie and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “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.

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

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

K3 Business Technology — Update 26 April 2016

K3 Business Technology

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free