Mytilineos — Profiting from energy transition

Mytilineos (ASE: MYTIL)

Currency in EUR

Last close As at 25/01/2023

EUR22.86

0.10 (0.44%)

Market capitalisation

EUR3,252m

Research: Industrials

Mytilineos — Profiting from energy transition

Mytilineos is well placed to benefit from several energy transition-related themes. Mytilineos’s proactive management team has shown foresight in its investment decisions on decarbonisation over the last few years. It has built a renewable portfolio of c 8.6GW, including 2.4GW in Greece and 6.2GW of international projects that are mostly being developed for sale; it is decarbonising its integrated aluminium production facility, such that it should benefit from ‘low carbon’ aluminium branding from 2025; and it is increasing its activities in sustainable infrastructure projects. We estimate the share of earnings (EBITDA) derived from energy transition activities will increase from 26% in 2021 to 57% in 2025 (and 60% from 2026), which will help drive a four-year group EPS CAGR of 18%, with Mytilineos continuing to achieve superior returns (c 14% ROCE). It is well funded to support its investment in the energy transition, with financial flexibility of c €1.5bn augmented by strong operating cash flow in all business areas.

James Magness

Written by

James Magness

Director, Energy & Resources

Industrials

Mytilineos

Profiting from energy transition

Outlook on energy transition

Industrials

16 September 2022

Price

€14.65

Market cap

€2,058m

Net debt (€m) at end H122

945

Number of shares (excluding buybacks)

137.4m

Free float

73.5%

Code

MYTIL

Primary exchange

ASE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.5)

(2.7)

(6.9)

Rel (local)

(3.2)

(2.7)

0.3

52-week high/low

€18.1

€12.8

Business description

Mytilineos is a leading industrial company with an international presence in all five continents. It is active in Metallurgy, Power & Gas, Sustainable Engineering Solutions and Renewables & Storage Development, operating via a unique synergistic business model.

Next events

9M trading update

25 October 2022

Analyst

James Magness

+44 (0)20 3077 5756

Mytilineos is a research client of Edison Investment Research Limited

Mytilineos is well placed to benefit from several energy transition-related themes. Mytilineos’s proactive management team has shown foresight in its investment decisions on decarbonisation over the last few years. It has built a renewable portfolio of c 8.6GW, including 2.4GW in Greece and 6.2GW of international projects that are mostly being developed for sale; it is decarbonising its integrated aluminium production facility, such that it should benefit from ‘low carbon’ aluminium branding from 2025; and it is increasing its activities in sustainable infrastructure projects. We estimate the share of earnings (EBITDA) derived from energy transition activities will increase from 26% in 2021 to 57% in 2025 (and 60% from 2026), which will help drive a four-year group EPS CAGR of 18%, with Mytilineos continuing to achieve superior returns (c 14% ROCE). It is well funded to support its investment in the energy transition, with financial flexibility of c €1.5bn augmented by strong operating cash flow in all business areas.

Year end

EBITDA
(€m)

Net income
(€m)

EPS*
(€)

DPS**
(€)

P/E
(x)

Yield
(%)

12/20

315

130

0.91

0.38

16.1

2.6

12/21

359

180

1.32

0.46

11.1

3.1

12/22e

664

356

2.60

0.91

5.6

6.2

12/23e

704

385

2.80

0.98

5.2

6.7

12/24e

738

409

2.97

1.04

4.9

7.1

Note: *Number of shares is adjusted for the company’s ongoing buyback scheme. **Final distributed dividend per share.

The future is bright

Recent unprecedently high gas prices and an uncertain outlook, combined with an increased focus on energy security, are accelerating plans for renewables in Europe. Mytilineos is well placed to benefit, with renewable assets of nearly 8.6GW, comprising mostly solar PV but also wind and energy storage. Through its Renewables and Storage Development (RSD) division it is increasing its focus on high-margin ‘build, operate and transfer’ (BOT) projects. We have almost doubled our earnings forecasts for RSD over FY22–25e.

Strong balance sheet provides flexibility

Mytilineos has a strong balance sheet and is well funded to support its investment in the energy transition. Despite its ongoing investment in the energy transition, our forecast net debt to EBITDA ratio is just 1.5–1.7x in FY22–25. It has financial flexibility of c €1.5bn and should gain access to cheap finance through the European Recovery and Resilience Facility (RRF). This augments strong operational cash flow generation and extends Mytilineos’s competitive advantage in many areas of its business.

Valuation: Risk-reward skewed heavily to the upside

Our per-share valuation of €27.0 (c 85% above the current share price) is based on a 10-year discounted cash flow (DCF) methodology, which better reflects Mytilineos’s growth prospects under the energy transition. We cross-check with a sum-of-the-parts peer valuation, which implies a valuation of €27.8/share, 3% above our DCF valuation.

Investment summary

Significant investment in energy transition-related growth

Mytilineos is a diversified industrial company operating in four main business areas: power generation/supply (Power & Gas division, or P&G); alumina/aluminium production (Metallurgy division); engineering, procurement and construction (EPC) of power and sustainability projects (Sustainable Engineering Solutions division, or SES); and renewables/energy storage development (Renewables & Storage Development division, or RSD). It is listed on the Athens Stock Exchange and became a member of the MSCI Global Standard Indices earlier this year (May 2022), which has resulted in an increase in the stock’s liquidity. It has been investing heavily to benefit from the energy transition. It has invested c €0.9bn over five years (2017–21) and we estimate it will invest €1.7bn over the next five years (2022–26), including the development of 1.5GW of solar plants in Greece (in P&G) and renewable development assets (mostly solar photovoltaic, PV) of over 6GW at various stages of development and construction (in RSD). Mytilineos leverages synergies between the divisions to create a portfolio of assets that have in common a low-cost, competitive positioning. We forecast that Mytilineos will increase the share of its earnings (EBITDA) from energy transition activities from 26% in 2021 to 57% in 2025 (and 60% from 2026). This translates into a five-year EBITDA CAGR of 35% in energy transition-related activities (from c €130m in 2020 to c €436m in 2025), and a five-year group EPS CAGR of 18%.

Valuation: Risk-reward skewed heavily to the upside

Our valuation is based on a 10-year DCF for each division, which better reflects the longer-term energy transition, followed by a terminal value. We believe we have been conservative in applying 1% terminal growth across Metallurgy, P&G and SES; and 2% for RSD. We increase our WACC assumption to 7.5% from 7.0% previously to reflect an increase in the cost equity. We discuss our modelling assumptions in the following sections. Our DCF approach suggests a per-share valuation of €27.0, which implies c 85% upside versus the current share price (€14.65) and remains unchanged since our last published valuation. If the WACC and number of shares had remained unchanged, our valuation would have increased by €4.0/share to €31/share, driven by increased valuations across all divisions, with the largest contribution from RSD of 29% (c €2/share).

We use peer valuation as a cross-check, rather than driving our valuation, because we believe near-term earnings multiples do not accurately reflect Mytilineos’s long-term growth prospects. We take a sum-of-the-parts (SOTP) divisional based approach, which best reflects the uniqueness of the Mytilineos business. Adopting EV/EBITDA multiples of comparable peers on a divisional basis suggests an SOTP valuation of, on first impression, c €25.4/share, which when adjusted to adequately reflect the competitive strengths or growth prospects of Mytilineos’s divisions relative to their peers (we assume a 20% premium to the median peer multiples for some business units) increases by c €2.4/share to c €27.9/share. This is 3% above our DCF-based share valuation.

Strong earnings growth and sustained long-term free cash flow generation

On the H122 earnings call the chairman suggested that Mytilineos could potentially substantially exceed its previous informal FY22 net income guidance of €260m (with H2 notably better than H1). Our forecasts now reflect this. We forecast net income of €350m in FY22 and forecast a three-year net income CAGR (2021–24) of 29%. We expect particularly strong growth in RSD as the strategic focus shifts towards higher-margin BOT projects. The current environment is highly attractive for these projects, as outlined in our European renewables report published on 30 May 2022. Mytilineos has increased its international renewables (mostly solar) development pipeline to more than 6GW, of which 2.5GW are mature or operating. In addition, we expect strong growth in SES, which is increasingly benefiting from the over $12tn in stimulus packages announced during the pandemic, a sizeable portion of which are being allocated to sustainability projects. Metallurgy and P&G have been strong performers over the last few quarters, and we expect solid performances to continue, assisted by competitive advantages in these divisions (discussed in the P&G and Metallurgy sections below).

We expect Mytilineos’s return on capital employed (ROCE) to average 14% over FY22–25e. This suggests the company is putting capital to good use. Although free cash flow (FCF) is negative in 2021, due to significant investment in BOT projects to take advantage of the current attractive environment, Mytilineos continues to have significant financial flexibility, with total liquidity of c €1.5bn, augmented by strong operating cash flow in all areas of the business. From FY23, Mytilineos’s investment programme could be fully funded through operating cash flow; however, we note that the company should gain access to cheap capital through the European RRF, so will likely opt to use this for some of the renewables investment. We estimate that the FCF yield will increase to 10% by FY24, as Mytilineos starts to see a cash return on its investments. Assuming Mytilineos continues its current dividend pay-out ratio of c 35%, we estimate its dividend yield will increase to 6–7% over FY22–25, an increase from 3% in FY21, and this is in addition to its ongoing share buyback programme (we estimate c €70m of shares have been repurchased so far over 2020–21). Mytilineos has a strong balance sheet with our forecast net debt to EBITDA ratio of just 1.7x in FY22–23, decreasing to 1.5x in FY24–25.

32BRecord-high results despite global challenges

Mytilineos’s continued strong growth momentum in H122 delivered another record-high set of results. Net profit after minorities increased by 116% to €166m versus H121 (€77m) and was higher than the previous record performance in H221 (€103m). This demonstrates the robustness of its business model despite the energy crisis in Europe, inflationary pressures, rising interest rates, the evolution of the pandemic and the recent geopolitical tensions. We are impressed by the continued strength of the Power & Gas division, which has more than doubled its EBITDA to €125m versus H121 (€48m). This is despite record-high gas prices and is a testament to Mytilineos’s integrated model (including increasing exposure to retail), its ability to source gas at competitive prices and the high efficiency and flexibility of its power generation portfolio. The efficiency will be further enhanced as the new high-efficiency combined cycle gas turbine plant ramps up during H2. Metallurgy also delivered impressive results. We expect RSD to be stronger in H2 due to solar parks under construction nearing conclusion (potentially c 450MW). Similarly, SES should be stronger as projects come to fruition. Its order book has been significantly increasing and it is well-positioned to benefit from the mobilisation of the European RRF’s resources to focus on ‘green’ development projects. Mytilineos continues to have significant financial flexibility, with total liquidity of c €1.5bn, augmented by strong operating cash flow in all areas of the business.

Management’s focus on ESG measures to enhance profitability

It has been long accepted that companies that embrace good ESG practices are likely to be well run, have better cost efficiencies and profitability, and therefore achieve superior returns to similar companies that do not. Mytilineos is a good example of a company where good ESG practices, particularly in relation to the emissions reduction and the energy transition (the ‘E’ of ESG) should have a positive impact on earnings. The management team has positioned Mytilineos as a leader among Greek companies in ESG practices. It is among the first companies to set net zero carbon emissions targets (by 2030 for SES and RSD and by 2050 for the entire group). Mytilineos is implementing a range of ESG measures, including adopting the UK Corporate Governance Code 2018, and has been scoring well with ESG ratings providers (including improving its score in seven out of eight ratings in 2020).

An energy transition play

Business mix

Mytilineos is a diversified industrial company operating in four main business areas: power generation/supply (P&G); alumina/aluminium production (Metallurgy); EPC of power and sustainability projects (SES); and renewables/energy storage development (RSD). A majority of its operations are in Greece; however, it has been increasing international exposure, particularly through its SES and RSD businesses. We estimate the share of EBITDA from SES and RSD to increase from a combined 15% in 2021 to 29% by 2025. We discuss each division’s activities in more detail, including the proportion of earnings from energy transition-related activities, in this section and the following sections.

Exhibit 1: Mytilineos – FY21 EBITDA split by division

Exhibit 2: Mytilineos – FY25e EBITDA split by division

Source: Edison Investment Research, Mytilineos

Source: Edison Investment Research

Exhibit 1: Mytilineos – FY21 EBITDA split by division

Source: Edison Investment Research, Mytilineos

Exhibit 2: Mytilineos – FY25e EBITDA split by division

Source: Edison Investment Research

We have undertaken detailed modelling of Mytilineos, which separates those areas of the business that relate to energy transition activities:

Bottom-up analysis of costs, margins, realised prices and project pipelines, where applicable.

Top-down analysis of long-term energy transition-related trends, growth rates and competitive landscapes for the industries relevant to Mytilineos’s businesses.

10-year explicit forecasts by division, which better represent the longer-term energy transition-related trends Mytilineos is experiencing.

We discuss the trends, Mytilineos’s strategic activities and our assumptions for each of the four divisions in separate sections below. We summarise our detailed assumptions and financial forecasts by division in the financials section.

Exhibits 3 below presents our EBITDA forecasts for each division, along with the percentage of EBITDA that is derived from the energy transition (RES, decarbonisation and sustainability) activities. The areas we model that relate to energy transition include:

RSD: all earnings.

SES: the proportion of earnings that relate to environmental and sustainability projects, such as solid and liquid waste treatment (including waste to power), hybrid and off-grid power projects, and energy efficiency projects.

Metallurgy: secondary aluminium production, primary aluminium production once it qualifies for a ‘low carbon’ classification (from 2025). Arguably the efficient onsite combined heat and power (CHP) production could also be included. However, we exclude it in line with Mytilineos’s definition of ‘green’ EBITDA on page 10 of its H122 results presentation.

P&G: electricity generated from RES. We do not classify earnings from the new high-efficiency CCGT plant as energy transition; however, arguably it could be included, as it is key to helping Greece transition away from lignite by 2023; just a few years ago lignite accounted for c 30% of Greece’s electricity production.

Exhibit 3: EBITDA (LHS, €m) and % energy transition* (RHS)

Source: Mytilineos accounts, Edison Investment Research. Note: *Percentage of EBITDA derived from energy transition activities.

We expect EBITDA to increase by 84% over 2021–25e, implying a CAGR of 17%. EPS increases by 97% or a 18% CAGR. We forecast an increase in EBITDA from energy transition activities from 36% in 2021 to 65% in 2025. This is considerably higher than Mytilineos’s strategic target of >40% (in 2025), set in a strategic presentation dated September 2020.

Power & Gas

Mytilineos had 206MW of renewable energy sources (RES) operating at end-2021. This comprises nearly all wind farms benefiting from favourable fixed tariffs of €98/MWh. Due to a significant improvement in the economics of solar, Mytilineos has switched its focus to investing in solar plants in Greece. Greece has particularly favourable conditions for solar with high sunshine hours and intensity. We estimate that Mytilineos will add 300MW pa of solar capacity over 2023–27, as it develops and keeps (build to keep) its mature pipeline of 1.5GW (mostly) solar projects in Greece (acquired in February). At €50/MWh, we estimate that solar projects can achieve project internal rates of return (IRRs) of 9% and equity IRRs of 17%, based on total installed costs of c €0.7m/MW and operating and maintenance (O&M) costs of €10/kW.

In the recent renewable auction (on 5 September) in Greece, there were not enough applications to achieve an 80% level of competition for the 1GW originally planned. Total awards of 538MW were made, of which 372MW was for solar PV and 166MW was for wind farms. The lowest winning bid for solar was €46/MWh compared to €33/MWh in the previous auction in May 2021. This not only demonstrates cost inflation but also developers’ decisions to pursue more lucrative power purchase agreements (PPAs) with corporates looking for energy security on the backdrop of record-high wholesale electricity prices (monthly average of €437/MWh in August).

Mytilineos is currently undergoing testing at its new 826MW CCGT plant and we assume it will ramp up to full production by end-2022. Based on this, Mytilineos will, we estimate, achieve a 20% share of domestic production in 2023.

Exhibit 4: P&G – EBITDA by segment (LHS, €m) and % energy transition* (RHS)

Source: Edison Investment Research, Mytilineos. Note: *Percentage of EBITDA derived from energy transition activities.

A response to the energy crisis

In reaction to the European energy crisis and dramatic increase in gas prices, the Greek government has paused plans to retire its remaining lignite plants and is poised to switch gas thermal plants to run on oil or lignite. In addition, there has been a significant increase in shipments of liquid natural gas (LNG) into Greece over the first half of 2022. Greece’s LNG terminal on the island of Revithoussa received 39 vessels (equating to 1.7bcm) during H122, accounting for c 45% of all imported gas into Greece, according to LNG Prime. This compared with 15 shipments in H121, equating to 1.1bcm. LNG deliveries to Greece are expected to continue to rise in future as it reduces its reliance on Russian gas. The Revithoussa LNG terminal has a capacity of up to 7bcm pa, which is enough to cover Greece’s entire natural gas consumption (c 7bcm in 2020). In addition, Greece is building another LNG terminal in Alexandroupolis, with capacity of 5.5bcm pa. Mytilineos has dramatically increased the number of slots it has booked in the Revithoussa terminal. It has secured 20 slots for 2023–24, which equates to c 3bcm in total, roughly 20% of Greece’s natural gas demand (based on 2021 levels of c 7bcm pa).

Greece’s state-owned power utility PPC had previously committed to cease operating all its existing lignite-fired power plants (c 2.6GW) by end-2023; however, in light of the energy crisis there is a possibility this may be extended. Mytilineos’s new 826MW CCGT plant will add up to just over 4.5TWh from 2023, as its ramps up to full commercial production by end-2022. In addition, PPC plans to convert a coal-fired thermal plant under construction to a 1GW gas power plant 2025. Assuming a load factor of 50%, this could add another 4TWh. Mytilineos’s new CCGT will be the most efficient plant in Greece, and this coupled with Mytilineos’s ability to source large quantities of natural gas at relatively attractive prices should enhance the company’s competitive advantage in power generation.

Exhibit 5: Greece’s power generation mix (TWh)

Source: PPC, Edison Investment Research

Summary of assumptions

We summarise our modelling assumptions in Exhibits 6 and 7 and discuss them in detail in the financials section.

Exhibit 6: Summary of assumptions for P&G

New

Previous*

Change

% change

Carbon price (€/t) (real)**

2021

53

53

0

0%

2022e

80

70

10

14%

2025e

95

90

5

6%

€100/t from 202Xe onwards

2026

2027

N/A

N/A

Wholesale electricity price (€/MWh) (real)**

2021

116

116

0

0%

2022e

300

200

100

50%

2025e

75

75

0

0%

% increase 2025 onwards (real)

0%

0%

0

0%

Wholesale gas price (€/MWh) (real)**

2021

46

46

0

0%

2022e

140

80

60

75%

2025e

30

30

0

0%

% increase 2025e onwards (real)

0%

0%

0

0%

Load factors

Korinthos Power (2022e onwards)

57%

57%

0

0%

Ag. Nikolaos CCGT (2022e onwards)

54%

54%

0

0%

New CCGT (2022e)

12%

30%

0

-60%

New CCGT (2023e onwards)

60%

60%

0

0%

Solar

21%

21%

0

0%

Wind

30%

28%

0

7%

Clean spark spread (€/MWh) (real)**

See Exhibit 7

Solar plants added pa (MW)

2022e

0

150

-150

-100%

2023–26e

300

300

0

0%

2027e

300

150

150

100%

Total added

1,500

1,500

0

0%

Auction price for solar (€/MWh)

2021 onwards

50

40

10

25%

Source: Edison Investment Research, European Energy Exchange, Ember, Energy Exchange Group (Greece) Note: *These assumptions relate to our latest valuation change on 19 April and may differ from the assumptions set out in our September 2021 outlook report. **Forecasts = real; 2021 historical = nominal.

Exhibit 7: Clean spark spread (€/MWh, real)*

Source: Edison Investment Research. Note: *Netted with profit/(loss) from the electricity supply business unit (in €/MWh). New and previous differ over 2018–21 as the forecasts are real and our inflation assumptions have changed (in line with the European Central Bank).

Metallurgy

Mytilineos owns Europe’s only integrated aluminium production facility, with aluminium capacity of 250kt (including primary aluminium capacity of 190kt), alumina capacity of 875kt and bauxite capacity of 650kt. It has proactively set emissions reduction targets to reduce total carbon dioxide (scope 1 and 2) emissions in the Metallurgy division by 65% and reduce specific emissions by 75% per tonne of aluminium produced by 2030 (relative to 2019 emission levels). Mytilineos’s management team has shown foresight in this area, as European standards are tightening, giving Mytilineos a competitive advantage over those European smelters that have been forced to catch up. As outlined in our December 2021 update note and expanded on in our themes report (published 21 March 2022), aluminium production is one of the most carbon-intensive industries, due to the high levels of electricity required for aluminium smelting. The aluminium industry must reduce its emissions by 77% by 2050 to meet global climate targets. Mytilineos’s strategy of sourcing renewable electricity and increasing its recycling capabilities put it at a competitive advantage versus many of its peers. We estimate that from 2025, Mytilineos’s entire primary production will qualify for a low carbon classification, which could lead to premium pricing (see our research reports referred to above). China accounts for more than 50% of global production, with 80% of Chinese production coming from coal-fired plants.

Exhibit 8: Metallurgy – EBITDA by segment (LHS, €m) and % energy transition* (RHS)

Source: Edison Investment Research, Mytilineos. Note: *Percentage of EBITDA derived from energy transition activities.

Premiums remain strong

Intraday aluminium prices peaked at over $4,000/t on supply concerns following Russia’s invasion of Ukraine. Since then, demand concerns have taken over with manufacturing in China down and a strong US dollar, and daily prices have decreased to c $2,300/t in September. However, European price premiums remain strong at c $1,200/t as many countries and companies are refusing to purchase Russian aluminium. This equates to more than 50% of the spot prices and is helping support strong earnings for Metallurgy.

Exhibit 9: Aluminium price and premium ($/t)

Source: Mytilineos

Summary of assumptions

We summarise our modelling assumptions in Exhibits 10 and 11 and discuss them in detail in the financials section.

Exhibit 10: Summary of assumptions for Metallurgy*

New

Previous*

Change

% change

Aluminium spot price (€/t) (real)**

2021

2,486

2,486

0

0%

2022e

2,800

2,800

0

0%

2023e

2,800

3,000

-200

-7%

2024e

2,800

2,600

200

8%

2025e onwards

2,500

2,400

100

4%

Aluminium premium (%)

2022e

45%

40%

0

13%

2025e onwards

20%

20%

0

0%

Alumina price (€/t) (real)**

2021

321

321

0

0%

2022e

380

355

25

7%

2023e

400

390

10

2%

2024e

375

380

-5

-1%

2025e onwards

350

340

10

3%

Electricity cost (€/MWh) (real)

2021–23e

42

42

0

0%

2024e

57

48

9

19%

2025e onwards

40

37

3

9%

Electricity % from RES

2023ee

45%

45%

0

0%

2024e onwards

70%

70%

0

0%

Margin per tonne (€/t)

See Exhibit 11

Sales (kt pa)

Alumina (2021) (i)

517

517

0

0%

Alumina (2022e onwards) (i)

517

517

0

0%

Primary aluminium (2021 onwards)

184

184

0

0%

Recycled aluminium (2021)

51

51

0

0%

Recycled aluminium (2030e)

120

120

0

0%

Recycled % total aluminium (2021)

22%

22%

0

0%

Recycled % total aluminium (2030e)

40%

40%

0

0%

Source: Edison Investment Research, Mytilineos. Note: *These assumptions relate to our latest valuation change on 19 April and may differ from the assumptions set out in our September 2021 outlook report. **Forecasts = real; 2021 historical = nominal.

Exhibit 11: Primary aluminium production margins (€/tonne, real)

Source: Edison Investment Research. Note: *New and previous differ over 2018–21 as the forecasts are real and our inflation assumptions have changed (in line with the European Central Bank).

Renewables & Storage Development

Through its Renewables and Storage Development (RSD) division, Mytilineos undertakes engineering, procurement and construction (EPC) projects for third parties along with its own renewables and energy storage developments, which are higher-margin BOT projects. The BOT projects are international projects, as Mytilineos typically keeps its own development projects in Greece, for instance the 1.5GW of solar projects being added to P&G in the coming years. RSD has been rapidly increasing its BOT development pipeline over the last couple of years (see Exhibit 12). As at end-H122, it had a total pipeline of 6.2GW, of which 2.5GW are mature or operating projects.

Exhibit 12: BOT development pipeline (MW)

Exhibit 13: EPC contracted orders (MW)

H121

H221

H122

Construction

118

121

123

Ready to build

389

526

665

Ready to build

553

608

1,256

Advanced development

739

708

456

Mature & operating

1,799

1,963

2,500

% increase

 

9%

27%

Early stage

2,501

3,000

3,700

% increase

 

20%

23%

Total portfolio

4,300

4,963

6,200

% increase

 

15%

25%

H121

H221

H122

Greece

295

275

330

Chile

401

283

283

UK

0

165

352

RoW

298

208

200

Total contracted

994

931

1,165

-6%

25%

Won during period

260

165

277

-37%

68%

Completed during period

25

228

161

831%

-29%

Source: Mytilineos

Source: Mytilineos

H121

H221

H122

Construction

118

121

123

Ready to build

389

526

665

Ready to build

553

608

1,256

Advanced development

739

708

456

Mature & operating

1,799

1,963

2,500

% increase

 

9%

27%

Early stage

2,501

3,000

3,700

% increase

 

20%

23%

Total portfolio

4,300

4,963

6,200

% increase

 

15%

25%

Source: Mytilineos

H121

H221

H122

Greece

295

275

330

Chile

401

283

283

UK

0

165

352

RoW

298

208

200

Total contracted

994

931

1,165

-6%

25%

Won during period

260

165

277

-37%

68%

Completed during period

25

228

161

831%

-29%

Source: Mytilineos

Exhibit 12: BOT development pipeline (MW)

H121

H221

H122

Construction

118

121

123

Ready to build

389

526

665

Ready to build

553

608

1,256

Advanced development

739

708

456

Mature & operating

1,799

1,963

2,500

% increase

 

9%

27%

Early stage

2,501

3,000

3,700

% increase

 

20%

23%

Total portfolio

4,300

4,963

6,200

% increase

 

15%

25%

Source: Mytilineos

Exhibit 13: EPC contracted orders (MW)

H121

H221

H122

Greece

295

275

330

Chile

401

283

283

UK

0

165

352

RoW

298

208

200

Total contracted

994

931

1,165

-6%

25%

Won during period

260

165

277

-37%

68%

Completed during period

25

228

161

831%

-29%

Source: Mytilineos

An increasingly attractive environment

Unprecedentedly high wholesale gas and electricity prices across Europe, combined with Russia’s invasion of Ukraine, have accelerated energy security proposals in the EU and UK, which build on existing plans to reduce exposure to fossil fuels. Following Russia’s invasion of Ukraine, both the EU and UK have accelerated energy security measures to ensure less reliance on fossil fuels from volatile parts of the world such as Russia. The REPowerEU package and British Energy Security Strategy (BESS) paper set out ambitious plans where renewables will play an integral role. Mytilineos is well positioned to benefit. In our European renewables report, published on 30 May 2022, we conclude there is significant value coming into the sector and that renewables developers will be the main beneficiaries.

In addition, the European Commission has recently approved, under EU State aid rules, a Greek measure with an estimated budget of €341m to support the construction and operation of energy storage plants of up to 900MW. The measure will be partly funded by the RRF, following the European Commission’s positive assessment of the Greek Recovery and Resilience Plan and its adoption by the European Council. The measure aims at allowing a smooth integration in the Greek electricity system of an increasing share of renewable energy coming from wind and solar sources. Again, Mytilineos is well positioned to benefit. The support will be allocated as an investment grant in the construction phase and an annual incentive during the system’s operational life, for a term of 10 years. Energy storage developers will be awarded contracts by the end of 2023 and will be required to bring the proposed facilities online by end-2025.

Exhibit 14: RSD EBITDA by segment (LHS, €m) and % energy transition* (RHS)

Source: Edison Investment Research, Mytilineos. Note: *Percentage of EBITDA derived from energy transition activities.

Summary of assumptions

We summarise our modelling assumptions in Exhibit 15 and discuss them in detail in the financial section.

Exhibit 15: Summary of assumptions for RSD

New

Previous*

Change

% change

Additions – EPC (MW)

2021

253

253

0

0%

2022e

450

650

-200

-31%

2025e

600

950

-350

-37%

Cumulative 2021–25e

2,353

2,803

-451

-16%

CAGR 2025–30e

5%

6%

-1%

Additions – BOT (MW)

2021

189

189

0

0%

2022e

550

350

200

57%

2025e

500

525

-25

-5%

Cumulative 2021–25e

2,239

1,889

350

19%

CAGR 2025–30e

0%

6%

-6%

Cost per MW – 2022 onwards (€m) (real)

EPC

0.70

0.60

0

17%

BOT

0.75

0.65

0

15%

EBITDA margin – EPC

2022e

6.0%

6.0%

0.0%

2023e

6.0%

6.5%

-0.5%

2024e

6.0%

6.8%

-0.8%

2025e

6.0%

7.0%

-1.0%

2030e

5.0%

7.0%

-2.0%

EBITDA margin – BOT

2022e

16%

12%

3.5%

2023e

21%

12%

9.0%

2024–25e

23%

12%

11.0%

2030e

19%

12%

7.0%

Capex + working capital (€m)

2022e

396

61

335

550%

2023e

61

60

1

1%

2024e

38

67

-29

-44%

2025e onwards

22

21

1

5%

Source: Edison Investment Research. Note: *These assumptions relate to our latest valuation change on 19 April and may differ from the assumptions set in our September 2021 outlook report.

Sustainable Engineering Solutions

In 2020, the former EPC & Infrastructure business was transformed into SES. We believe this marks a turning point for the business. In FY21, it delivered the strongest performance since FY18, with €33m of EBITDA, implying a 9% EBITDA margin (FY18: EBITDA of €55m, EBITDA margin of 15%). We forecast increasing revenues and improving profitability in the coming years, as the business expands into sustainable development infrastructure, while continuing to pursue opportunities in the construction of thermal plants and selected construction projects. SES is increasing its activities in areas such as solid and liquid waste management, hybrid and off-grid energy projects, energy upgrade projects and innovative first-of-a-kind energy projects (such as hydrogen projects). Sustainable development projects accounted for 15% of the committed order backlog of €1.2bn at end-H122, and there are mature projects worth €1.3bn that could potentially be converted to new orders, 39% of which are sustainable development projects. Recent conventional business wins for gas thermal plants in the UK and Poland have also helped increase the committed order backlog.

Exhibit 16: SES division committed order backlog (€m, left-hand side)

Exhibit 17: SES division mature order backlog (€m)

Source: Mytilineos

Source: Mytilineos

Exhibit 16: SES division committed order backlog (€m, left-hand side)

Source: Mytilineos

Exhibit 17: SES division mature order backlog (€m)

Source: Mytilineos

Since the start of the pandemic, governments globally have announced over $12tn in stimulus packages, including the United States with c $2tn and Europe with c $1tn (its €800m recovery fund). A sizeable portion of these funds are being allocated to sustainability projects. McKinsey estimates there are $1tn of unassigned energy and environmental projects for 2020–22.

Exhibit 18: SES EBITDA by segment (LHS, €m) and % energy transition* (RHS)

Source: Edison Investment Research, Mytilineos. Note: *Percentage of EBITDA derived from energy transition activities.

Summary of assumptions

We summarise our modelling assumptions in Exhibit 19 and discuss them in detail in the financials section.

Exhibit 19: Summary of assumptions for SES

New

Previous*

Change

% change

Revenue (€m)

2021

371

371

0

0%

2022e

450

450

0

0%

2025e

550

550

0

0%

2025e onwards: % increase (real)

0%

0%

0

0%

EBITDA margin

2022e

10%

10%

0

0%

2023e

11%

11%

0

0%

2024e onwards

12%

12%

0

0%

% EBITDA from energy transition

2021

20%

20%

0

0%

2025e

35%

35%

0

0%

2030e

50%

50%

0

0%

Source: Edison Investment Research estimates. Note: *These assumptions relate to our latest valuation change on 19 April and may differ from the assumptions set in our September 2021 outlook report.

6BValuation: Risk-reward balance skewed to the upside

We use a 10-year DCF analysis (on a SOTP basis), which better considers the longer-term impact of the energy transition. We place less emphasis on peer valuation, using it only as a cross-check.

Our DCF approach suggests a per-share valuation of €27.0, which implies c 85% upside versus the current share price (€14.65) and remains unchanged since our last published valuation. This is due to an uplift in valuation of the RSD division (+€2.1/share), despite an increase in WACC to 7.5% from 7%, being offset by the impact of the increase in WACC on our valuations for the other divisions combined with an adjustment to the number of shares used in our valuation (due to 4.5m shares previously repurchased by the company being awarded for free to senior executives).

If the WACC and number of shares had remained unchanged, our valuation would have increased by €5.0/share to €31/share, driven by increases valuations across all division, with the largest contribution from RSD of 30% (€1.9/share), and increases in Metallurgy, P&G and SES of 8% (€0.6/share), 8% (€0.7/share) and 0% respectively.

25BDCF

Key assumptions and drivers for our cash flow model are as follows:

In line with the European Central Bank’s projections, we apply inflation of 8.1% in 2022, 5.5% in 2023, 2.3% in 2024, followed by 2% pa from 2025 to our forecasts made in real terms over a 10-year explicit cash flow period.

A 1% terminal growth rate for Metallurgy, P&G and SES; and 2% for RSD, which is conservative, particularly for businesses that should benefit from strong long-term growth rates associated with the energy transition.

A WACC of 7.5%, based on a beta of 1.0x, cost of equity of 11.7%, risk free rate of 1.4% and gross cost of debt of 2.0% (with total debt at an assumed 40% of capital). This is an increase on the WACC of 7% used previously and reflects an increase in the cost of equity.

Terminal capex (included in the terminal cash flow) for the P&G and Metallurgy divisions of 1.5x depreciation.

SES is not a capex intensive business; however, we adopt capex assumptions equating to c 2x depreciation throughout our forecast period.

For RSD, we assume capex of €364m in FY22 for the completion of BOT solar plants under construction (665MW at the end of H122). For the subsequent period we assume that proceeds from the sale of projects is reinvested to maintain a run rate of 500MW pa; thus, net growth capex is zero.

We use the number of shares excluding share repurchases (137.4m) in arriving at our value per share of €27. This is consistent with using the number of shares in issue (142.9m) but adding Mytilineos’s investment in its own shares (c 5.3m shares repurchased) to the equity valuation.

Exhibit 20: DCF-based SOTP valuation

Components

Edison new EV (€m)

Per share
(€)

EBITDA 2022e (€m)

Implied EV/EBITDA (x)

Edison old EV (€m)

Per share (old)
(€)

Difference old versus new (%)

Per share difference (€)

P&G

1,513

11.0

275

5.5x

1,498

11.2

1%

-0.2

Metallurgy

1,802

13.1

251

7.2x

1,813

13.5

-1%

-0.4

RSD

1,124

8.2

96

11.7x

970

7.2

16%

0.9

SES

491

3.6

45

10.9x

515

3.8

-5%

-0.3

Other*

(3)

Enterprise value

4,929

35.9

664

7.4x

4,796

35.7

3%

0.1

Net cash/(debt)**

(886)

(6.4)

(818)

(6.1)

8%

-0.4

Other adjustments *

(336)

(2.5)

(352)

(2.6)

-4%

0.2

Total equity value

3,707

27.0

3,626

27.0

2%

0.0

Number of shares (m)

137.4

134.3

2%

Value per share (€) (rounded)

27.0

27.0

0%

Current share price (€)

14.7

% upside/(downside)

84%

Source: Edison Investment Research. Note: *Includes associates, minority interests, employment benefits liability and an adjustment for c €11m pa of post-tax cash flow (which includes other items of negative €3m pa) not included in divisional forecasts. **Net debt at end of H122 adjusted for share repurchase payments since the start of H222; we use apportioned H222 cash flow in the first year of our DCF.

Exhibit 21: Sensitivities of DCF valuation (€/share) to WACC and terminal growth rates

WACC

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

9.00%

Terminal growth rate*

0.0%

32.6

29.3

26.5

24.1

22.1

20.2

18.6

0.5%

35.0

31.2

28.1

25.4

23.1

21.2

19.4

1.0%

37.9

33.6

30.0

27.0

24.4

22.2

20.3

1.5%

41.6

36.4

32.2

28.8

25.9

23.4

21.3

2.0%

46.3

40.0

35.0

30.9

27.6

24.8

22.5

2.5%

52.6

44.5

38.4

33.6

29.7

26.5

23.8

3.0%

61.5

50.5

42.7

36.8

32.2

28.5

25.4

Source: Edison Investment Research. Note: *Stated terminal growth rate (TGR) applies to all divisions, expect RSD; TGR for RSD is stated TGR + 1%.

Peer valuation: Divisional SOTP

We use peer valuation as a cross-check, rather than driving our valuation, as we believe near-term earnings multiples do not accurately reflect Mytilineos’s long-term growth prospects. In our approach, we apply EV/EBITDA multiples (using the current enterprise value (EV)) to peers for each division. We use 2023 EBITDA given that we are now more than halfway through 2022.

On first impression, the peer valuation suggests €25.4/share, which is €1.6/share below our valuation of €27.0. However, we do not believe the multiples adequately reflect the competitive strengths or the growth prospects of some of Mytilineos’s business units versus their peers:

The Metallurgy division benefits from superior margins (2023e EBITDA margin of 23% versus 18% for its peers) and is an early mover in the transition to green and sustainable aluminium. Many of its peers are Asian, operating production facilities using captive coal plants; they will need to invest heavily as they come under increasing pressure to decarbonise.

The RES power generation business (within the P&G division) has higher long-term growth prospects than its peers, with an EBITDA CAGR of 30% in 2022–24e versus 16% for its peers, and we expect growth beyond 2024 will also be higher than its peers as we estimate that it adds solar capacity of 300MW pa in 2025–27. In addition, margins are higher (2022 EBITDA margin of 77% vs 59% for its peers).

We apply a 20% premium to multiples for each of these business units. Collectively, this would increase the valuation by c €2.4/share to an adjusted €27.8/share, which is 3% above our DCF valuation.

Exhibit 22: Peer group multiple analysis

Implied EV
(€m)

EV/EBITDA
(x)

EBITDA
(€m)

EBITDA
(% CAGR)

EBITDA
(% margin)

2022

2022

2020–23e

2022

Comps – median metrics:

 

 

 

 

 

CCGT plants

4.7

1,463

22%

24%

RES

11.0

415

16%

59%

Supply

4.5

0

0%

0%

Power & Gas

Metallurgy

4.5

1,291

4%

18%

RSD (i)

12.7

1,613

15%

26%

SES

7.0

528

20%

8%

Mytilineos:

CCGT plants

1,108

4.7

238

-1%

12%

RES

589

11.0

53

30%

77%

Supply

78

4.5

17

0%

0%

Power & Gas

1,776

5.8

308

0%

0%

Metallurgy

1,001

4.5

222

0%

23%

RSD

1,547

12.7

122

19%

14%

SES

388

7.0

55

18%

11%

Total

4,711

Net debt and other adjustments*

(1,223)

Equity value

3,489

Number of shares (m)

137.4

Value per share (€)

25.4

Fair value adjustment** (€)

2.4

Adjusted value per share (€)

27.8

Source: Edison Investment Research, Refinitiv. Note: Priced at 15 September 2021. *Net debt at end of H122 adjusted for share repurchase payments since the start of H222; other adjustments include associates, minority interests, employment benefits liability and an adjustment for c €11m pa of post-tax cash flow not included in divisional forecasts. **20% premium applied to some business areas to reflect fair value (see commentary in the paragraph above the table).

Financials

Changes to group-level forecasts

We estimate capex of c €630m in FY22, which includes upfront expenditure on BOT solar plants (developed for sale to third parties). Combined with our estimated working capital investment of c €150m, this equates to c €780m. This is an increase of c €270m on our previous estimate for capex plus working capital investment (of c €510m) and represents increased activity in BOT solar plants in the RSD division, where we have increased our sales forecast to 500MW pa over FY22–24 (previously 350MW, 400MW and 450MW respectively), along with increased working capital in P&G due to volatile gas prices.

For FY22, this will mostly be funded through operating cash flow (Mytilineos is highly cash generative) and the remainder through net debt. Based on our forecasts, from FY23, Mytilineos’s investment programme could be fully funded through operating cash flow; however, we note that the company should gain access to cheap capital through the European RRF, so will likely opt to use this for some of the renewables investment.

Net debt increased from €803m at end-FY21 to €945m at end-H122. We estimate the sale of 450MW of BOT solar plants in H222 should provide a positive contribution of c €430m to H222 cashflow, however, the proceeds will be mostly reinvested in future BOT projects, thus we forecast net debt will increase to c €1.1bn by end-FY22. However, due to the significant increase in EBITDA during FY22e, net debt to EBITDA will decrease to 1.7x (from 2.3x end-FY21), which is well below sector average.

We increase the effective tax rate in FY22 to 19% (from 17% previously), which is consistent with H122 results. We note that this is still below the Greek corporate income tax rate of 22% and reflects non-taxable items included in profit outweighing non-tax-deductible expenditures. We increase the effective tax rate to 20% by 2025 and 22% by 2030.

We adopt an average interest rate of 2.5% in FY22, which is roughly consistent with H122 results. This includes €500m green bonds issued in April 2021 with a maturity of 2026 and an interest rate of 2.25%. We reduce the interest rate to 2.0% by 2025 due to very low interest loans anticipated from the European RRF. We increase the interest rate gradually up to 3% by 2030.

On 20 April, Mytilineos awarded 4.5m of its previously repurchased shares to senior executives. Adjusting for this, the company held 4.6m of its own shares as at 30 June 2022. Based on company announcements, we calculate Mytilineos has repurchased a further 0.7m shares since 30 June 2022, with an estimated value of €10m based on an average price of €15 per share over the period. We reflect this in our cash flow statement and adjust the number of shares (excluding buybacks) to 137.4m. In last update note, published on 19 April, we estimated shares (excluding buybacks) of 134.4m. This was prior to the 4.5m share award.

Changes to division-level forecasts

Exhibit 23: Changes to Edison forecasts (€m, unless shown)

Edison new

Edison old

Difference (%)

2022e

2023e

2024e

2022e

2023e

2024e

2022e

2023e

2024e

Divisional EBITDA:

Metallurgy

251

222

249

221

241

270

13%

-8%

-8%

SES

45

55

63

45

55

63

0%

0%

0%

RSD

96

122

137

47

60

72

104%

102%

89%

P&G

275

308

293

208

289

268

33%

7%

9%

Other

(3)

(3)

(3)

(3)

(3)

(3)

n/m

n/m

n/m

Group EBITDA

664

704

738

518

642

670

28%

10%

10%

Net income*

356

385

409

271

359

372

32%

7%

10%

Reported EPS (€)

2.60

2.80

2.97

2.01

2.67

2.77

29%

5%

7%

Source: Edison Investment Research. Note: *Adjusted for minorities; change in EPS forecasts are different to net income due to own shares held.

Metallurgy: Benefiting from strong aluminium prices and premia

We have decreased our aluminium price forecasts in 2022 to $2,800/t from $3,000/t to reflect a weakening of aluminium prices from Q2. This affects our forecasts for FY23 and FY24 due to an assumed lag of 18 months between spot prices and realised prices as a result of hedging/fixed price contracts. FY22 benefits from continued strong premiums of above $1,200/t (not hedged), equating to c 45% of spot aluminium prices.

Despite the recent decrease in aluminium price, we expect robust longer-term pricing, supported by the decarbonisation of aluminium (see our themes note published in March). We keep our 2023 price forecast at $2,800/t and increase our 2024 price forecast to $2,800/t (from $2,600/t) and our long-term price forecast (for 2025 onwards) to $2,500/t (from $2,400/t).

We assume premiums decrease from 45% of the aluminium price in 2022 (up from 40% previously) to 20% of aluminium price from 2025 onwards (remains unchanged). As noted in our recent aluminium themes report we believe that longer-term customers could be increasingly willing to pay an ‘additional’ premium for ‘low carbon’ aluminium. We do not take account of this in our long-term price or premium forecasts at this stage; however, we acknowledge potential upside in the future.

Due to increased raw material costs, we have increased our long-term renewables costs assumption to €45/MWh (from €40/MWh). This put downwards pressure on our long-term margin forecasts, however, this only partially offsets the upwards pressure from our long-term aluminium and alumina price assumption increases. Thus, our long-term margin assumption increases by €21/tonne.

The net impact of the above changes is a 13% increase in our EBITDA forecasts for FY22 and an 8% decrease for FY23 and FY24, normalising at a 5–8% increase by the second half of our 10-year forecast period. At a WACC of 7.0%, this results in an 8% increase to our valuation for Metallurgy; however, as we have increased WACC to 7.5%, our valuation stays more or less the same (down under 1%).

Power & Gas: Benefiting from favourable clean spark spread

We have increased our wholesale electricity, gas and carbon price assumptions to reflect current market conditions. We assume the average gas price peaks at €140/MWh (daily average) in 2022 (previously €80/MWh), decreasing to €30/MWh from 2025 (unchanged); the average carbon price increases from €80/t in 2022 to €100/t from 2025 (previously €100/t from 2027); and the average wholesale electricity price peaks at €300/MWh (daily average) in 2022 (up from €200/MWh), decreasing to €75/MWh from 2025 (previously €75/MWh).

The above price assumptions result in favourable clean spark spreads (netted with earnings from the electricity supply business unit) for FY22–24, which we estimate (real) at €50/MWh (previously €31/MWh), €33/MWh (previously €31/MWh) and €29/MWh (previously €26/MWh) respectively, and are a consequence of Mytilineos operating the most efficient thermal plant fleet in Greece. Our long-term clean spark spread estimates remain roughly the same at c €20/MWh.

Mytilineos is seeking low-cost debt capital from the European RRF to contribute towards its 1.5GW of own build Greek solar plants. The terms of this funding are favourable, however, causing delays to the projects. We therefore assume a further six-month delay to these solar plants resulting in 300MW pa in each of FY23–27 (previously 150MW in FY22, 300MW pa in FY23–26, and 150MW in FY27). We thus reduce our capex estimate for FY22 to €154m (from €319m previously). We note our previous estimate also included a buffer for capex carried over from FY21, which has not materialised in P&G (but instead in RSD). Our capex estimates for FY23–26 remains unchanged, and we add €90m in capex to FY27 to represent the additional 150MW added to this year.

We assume the new CCGT plant starts production during H222 (previously H122) and ramps up to full capacity by year-end. We adopt a 20% load factor in FY22 (previously 30%) based on our estimated ramp-up profile. Once at full capacity (load factor of more than 60%), it will notably enhance the company's thermal fleet efficiency.

The net impact of the above changes is a 33% increase in our EBITDA forecasts for FY22 and increases of 7% and 9% for FY23 and FY24 respectively; the forecasts in the second half of our 10-year forecast period are slightly higher. At a WACC of 7.0%, this results in an 8% increase to our valuation for P&G; however, as we have increased WACC to 7.5%, our valuation stays more or less the same (c 1%).

RSD: Expect further acceleration in own pipeline projects

To reflect the increasingly favourable environment for European renewables and Mytilineos’s growing renewable development pipeline, equating to c 6.2GW outside of Greece, we increase our forecasts for BOT project sales to 550MW in FY22 (previously 350MW) and 500MW pa from FY23 (previously 400MW in FY23 and 450MW in FY24). Cumulatively, we now forecast sales of 2.0GW over FY22–25 up from 1.7GW previously. This compares to a mature (and operating) project pipeline of nearly 2.5GW (as at end-FY21), thus there could be potential to further increase our sales forecasts.

We extend our sales assumption of 500MW pa over our entire forecast period (previously increased from 500MW in FY25 to 700MW in FY31). This is for modelling simplicity as we assume that the proceeds from BOT sales are reinvested in future projects, thus zero growth capex is required from FY23. In FY22, we assume net capex of c €350m as BOT sales ramp up from 189MW in FY21 to 550MW in FY22, before reaching a steady state at 500MW pa. Our 10-year forecast BOT sales equate to c 5.0GW, which is less than the company’s existing international pipeline of 6.2GW, however allows for some projects not coming to fruition.

Due to supply chain and inflationary pressures, we increase our cost per MW assumptions to €0.70m/MW for EPC contracts (previously €0.60m/MW) and €0.75m/MW for BOT projects (previously €0.65m/MW).

Furthermore, due to favourable market conditions (ie high energy prices), we increase our margin assumptions on BOT projects from 12% across the entire forecast period (equating to c €100/kW) to 16% in FY22 (equating to c €150/kW), 21% in FY23 (equating to c €200/kW) and 23% in FY24–25 (equating to c €225/kW). We then reduce it gradually to c €175/kW by the end of the forecast period. Due to Mytilineos’s strong balance sheet, it has the flexibility to ensure margins are optimised on each project sale. For simplicity, we model the company’s international pipeline as BOT only (and not build to keep), however, we note that keeping, in the short term, some solar plants with exposure to the current high merchant prices could further increase value accretion in RSD. There would of course be near-term capital and cash flow implications too.

For EPC sales, the firm and mature project backlog at the end of H122 was 451MW, up from 351MW at the end of FY21; thus, we increase our EPC sales forecast for FY22 to 450MW (previously 400MW). As Mytilineos is shifting its focus to higher-margin BOT projects, we reduce our FY23–25 sales forecasts to 500MW, 550MW and 600MW respectively from 600MW, 750MW and 800MW respectively.

The net impact of the above changes is an increase in our EBITDA forecasts for FY22, FY23 and FY24 by 104%, 102% and 89% respectively. At a WACC of 7.0%, this results in a 29% increase to our valuation for RSD; however, as we have increased WACC to 7.5%, our valuation increases by 16%.

SES: Unchanged

We keep our forecasts the same for SES. As we adopt a half year period (H222) as the first period of our DCF, at a WACC of 7.0%, this results in a slight (c 1%) increase to our valuation for SES, in recognition of a stronger H2 (than H1); however, as we have increased WACC to 7.5%, our valuation decreases by 6%.

Exhibit 24: Financial summary

€m

2019

2020

2021

2022e

2023e

2024e

31 December

PROFIT & LOSS

Revenue

 

 

2,256

1,899

2,664

5,426

6,133

5,039

Cost of Sales

(1,922)

(1,559)

(2,299)

(4,742)

(5,406)

(4,276)

Gross Profit

334

339

365

685

727

763

EBITDA

 

 

313

315

359

664

704

738

Operating Profit (before except.)

219

225

279

550

572

597

Exceptionals

Operating Profit

219

225

279

550

572

597

Other

(12)

(34)

1

1

1

1

Net Interest

(27)

(18)

(41)

(61)

(62)

(60)

Profit Before Tax (norm)

 

180

172

239

491

511

538

Profit Before Tax (reported)

 

180

172

239

491

511

538

Tax

(29)

(28)

(41)

(93)

(99)

(106)

Profit After Tax (norm)

150

144

198

397

412

433

Profit After Tax (FRS 3)

150

144

198

397

412

433

Minority interests

(3)

(14)

(18)

(40)

(27)

(23)

Discontinued activities

(3)

(1)

(1)

(1)

(1)

(1)

Average Number of Shares Outstanding (m)

142.9

141.2

136.0

136.9

137.4

137.4

Net income (normalised)

0

148

130

180

357

385

409

Net income (FRS3)

0

145

129

180

356

385

409

EPS - normalised (€)

 

 

1.033

0.923

1.327

2.607

2.802

2.977

EPS - normalised and fully diluted (€)

1.033

0.923

1.327

2.607

2.802

2.977

EPS - reported (€)

 

 

1.014

0.913

1.324

2.603

2.798

2.973

Final distributed dividend per share (€

0.36

0.38

0.46

0.91

0.98

1.04

Gross Margin (%)

14.8

17.9

13.7

12.6

11.9

15.1

EBITDA Margin (%)

13.9

16.6

13.5

12.2

11.5

14.7

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

9.7

11.8

10.5

10.1

9.3

11.8

BALANCE SHEET

Fixed Assets

 

 

1,824

1,881

2,188

2,714

2,905

3,056

Intangible Assets

446

446

446

460

472

485

Tangible Assets

1,121

1,161

1,429

1,942

2,119

2,258

Right of use assets

48

45

48

48

48

48

Investments/Other

209

227

266

266

266

266

Current Assets

 

 

2,334

2,111

2,901

4,635

5,135

4,674

Stocks

214

290

469

922

1,043

857

Debtors

1,405

1,319

1,818

3,099

3,478

3,124

Cash

713

493

603

603

603

681

Other

1

9

12

12

12

12

Current Liabilities

 

 

(1,148)

(1,117)

(1,691)

(3,607)

(4,023)

(3,425)

Creditors

(1,066)

(1,042)

(1,609)

(3,193)

(3,599)

(3,001)

Short term borrowings

(83)

(76)

(82)

(414)

(424)

(424)

Long Term Liabilities

 

(1,376)

(1,302)

(1,682)

(1,682)

(1,682)

(1,682)

Long term borrowings

(1,051)

(955)

(1,324)

(1,324)

(1,324)

(1,324)

Other long-term liabilities

(325)

(348)

(358)

(358)

(358)

(358)

Net Assets (ex-minority)

 

1,634

1,572

1,716

2,060

2,334

2,623

CASH FLOW

Operating Cash Flow

 

270

316

277

463

574

645

Net Interest

(11)

(27)

(23)

(51)

(52)

(49)

Tax

(2)

(36)

(33)

(41)

(93)

(99)

Capex

(127)

(155)

(380)

(631)

(313)

(284)

Acquisitions/disposals

(4)

(20)

8

0

0

0

Financing

0

(56)

(32)

(10)

0

0

Dividends

(52)

(50)

(52)

(63)

(125)

(135)

Other

(110)

(41)

20

0

0

0

Net Cash Flow

(37)

(69)

(214)

(332)

(10)

79

Opening net debt/(cash)

 

390

421

538

803

1,136

1,145

HP finance leases initiated

6

(48)

(51)

0

0

0

Other

(0)

0

0

0

(0)

0

Closing net debt/(cash)

 

421

538

803

1,136

1,145

1,067

Source: company accounts, Edison Investment Research

Contact details

Revenue by geography

8 Artemidos Str.
Maroussi, 15125 Athens
Greece
+30 210-6877300/+30 210-6877476
www.mytilineos.gr/

Contact details

8 Artemidos Str.
Maroussi, 15125 Athens
Greece
+30 210-6877300/+30 210-6877476
www.mytilineos.gr/

Revenue by geography

Management team

CEO and chairman: Evangelos G Mytilineos

CFO: Panagiotis Gardelinos

After graduating with a BSc in economics from the University of Athens and an MSc in economics from the London School of Economics, Evangelos G Mytilineos took over the family business in 1978 and in 1990 founded Mytilineos Holdings Group. By acquiring the majority shareholding of Metka (1998) and Aluminium of Greece (2005) and making sizeable investments in the energy sector (it is now the largest independent power producer in Greece), he turned the company into one of Greece’s leading industrial groups.

He studied economics at the Athens University of Economics and Business. He joined Mytilineos in June 2005 as executive director - group financial controller and in 2011 he assumed the role of group CFO. In 2017 his role expanded further, undertaking the responsibility for IT and Central Procurement Divisions and more recently, in March 2020, the Investment Relations Division. He is a member of the board of director of Delfi Distomo and other subsidiaries, as well as member of the Tax Committee of Hellenic Federation of Enterprises (SEV).

General manager of P&G: Dinos A Benroubi

General manager of Metallurgy: Dimitris Stefanidis

Dinos A Benroubi has an engineering background and studied in the United States. He has 25 years’ experience at the Titan Cement Group, where he reached the position of director of cement operations – Greece, and spent two years in Viohalko, where he served as general manager of the Elval Group. He joined Mytilineos in 2006 and was appointed CEO of Korinthos Power in 2009 and general manager of Protergia in 2010.

Dimitris Stefanidis has an engineering background and 35 years of experience in aluminium. He joined Aluminium of Greece in 1984, where he assumed increasing responsibilities. He has international experience at Pechiney Group (1992 to 1996) and as continuous improvement director and then as technical manager of Alcan’s plant in Tomago, Australia (2002–05). In 2009 he was appointed CEO of Aluminium of Greece and oversaw several cost-cutting exercises that significantly improved the competitive position of the company.

General manager of SES: Panagiotis Gardelinos

General manager of RSD: Nikos Papapetrou

Panagiotis Gardelinos graduated from the National Technical University Athens, with a degree in mechanical engineering. He brings 32 years’ experience in the power sector, working in various positions with EPC contractors in Greece and Denmark, and joined Mytilineos in 2006.

Nikos Papapetrou graduated in 2003 from the department of Civil Engineering of the Aristotle University in Thessaloniki and in 2004 concluded an MSc in steel design and business management at the Imperial College of London. In 2004 he joined Egnatia Group (owned by Mytilineos) and since 2008 has been the CEO of Egnatia TEL.

Management team

CEO and chairman: Evangelos G Mytilineos

After graduating with a BSc in economics from the University of Athens and an MSc in economics from the London School of Economics, Evangelos G Mytilineos took over the family business in 1978 and in 1990 founded Mytilineos Holdings Group. By acquiring the majority shareholding of Metka (1998) and Aluminium of Greece (2005) and making sizeable investments in the energy sector (it is now the largest independent power producer in Greece), he turned the company into one of Greece’s leading industrial groups.

CFO: Panagiotis Gardelinos

He studied economics at the Athens University of Economics and Business. He joined Mytilineos in June 2005 as executive director - group financial controller and in 2011 he assumed the role of group CFO. In 2017 his role expanded further, undertaking the responsibility for IT and Central Procurement Divisions and more recently, in March 2020, the Investment Relations Division. He is a member of the board of director of Delfi Distomo and other subsidiaries, as well as member of the Tax Committee of Hellenic Federation of Enterprises (SEV).

General manager of P&G: Dinos A Benroubi

Dinos A Benroubi has an engineering background and studied in the United States. He has 25 years’ experience at the Titan Cement Group, where he reached the position of director of cement operations – Greece, and spent two years in Viohalko, where he served as general manager of the Elval Group. He joined Mytilineos in 2006 and was appointed CEO of Korinthos Power in 2009 and general manager of Protergia in 2010.

General manager of Metallurgy: Dimitris Stefanidis

Dimitris Stefanidis has an engineering background and 35 years of experience in aluminium. He joined Aluminium of Greece in 1984, where he assumed increasing responsibilities. He has international experience at Pechiney Group (1992 to 1996) and as continuous improvement director and then as technical manager of Alcan’s plant in Tomago, Australia (2002–05). In 2009 he was appointed CEO of Aluminium of Greece and oversaw several cost-cutting exercises that significantly improved the competitive position of the company.

Principal shareholders

(%)

Mytilineos family

26.5

Mytilineos SA*

3.7

Vanguard

2.7

Norges Bank

1.5

BlackRock

1.5

Fidelity

1.5

Note: *Own shares held.


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 £60,000 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 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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

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

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

1185 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

1185 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 £60,000 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 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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

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

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

1185 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

1185 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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