PNE is currently focused on expanding its business into new technologies (including solar) and emerging markets to access new profit opportunities, which the company expects will boost EBIT by 30–50% vs the historical average by 2023. On 26 August, PNE announced that it is in discussions with Morgan Stanley Infrastructure Partners about potential co-operations and investments that would include a takeover offer for PNE. PNE received an indicative non-binding offer for 100% of the shares, valuing the company at €3.50–3.80 per share.
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PNE Group |
Scaling up
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3 September 2019 |
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PNE is currently focused on expanding its business into new technologies (including solar) and emerging markets to access new profit opportunities, which the company expects will boost EBIT by 30–50% vs the historical average by 2023. On 26 August, PNE announced that it is in discussions with Morgan Stanley Infrastructure Partners about potential co-operations and investments that would include a takeover offer for PNE. PNE received an indicative non-binding offer for 100% of the shares, valuing the company at €3.50–3.80 per share.
Strategy focused on expansion into new markets
PNE’s strategy is focused on expanding the business by entering new technologies (solar PV, storage, power-to-gas, in addition to wind onshore and offshore), penetrating emerging markets (where growth opportunities are significantly stronger than mature economies) and expanding into the provision of engineering & financing solutions and consulting. Key targets include increasing the wind onshore asset portfolio to 200MW by 2020 (vs 96MW at H119, of which 71MW is in operation and the rest under construction), the increase in project development volumes to 400MW/year (236MW in FY18) and a step-up in the operations & maintenance (O&M) services portfolio to >2,200MW (from 1,500MW currently).
Higher earnings and lower volatility targeted
The company has experienced high volatility in results historically, due to timing of the sale of developed projects. On average, it has achieved an annual EBIT of €29.4m over the period 2011–18. PNE’s targets imply an annual EBIT of €38–44m by 2023 (+30–50% vs the 2011–16 average) and significantly lower volatility in results. At the H119 results, PNE reported EBITDA of €18.5m, +112% y-o-y and EBIT of €12.9m, +215% y-o-y thanks to higher project development. PNE confirmed its FY19 target of €25–30m EBITDA and €15–20m EBIT and we believe it is on track to achieve these targets. Refinitiv consensus estimates of €30m EBITDA and €18m EBIT are also consistent with PNE’s targets.
Delivery of EBIT growth would drive re-rating
The current share price is consistent with the range indicated by Morgan Stanley Infrastructure Partners, but PNE said there is no guarantee that the ongoing conversations will lead to a result or an offer being made. Taking an historical average EBIT of €29.4m, we calculate an EV/EBIT of 15x. With successful execution of the scale-up strategy and EBIT reaching the long-term target of €38–44m, EV/EBIT would reduce to 10x, deserving a re-rating in our view.
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Consensus estimates
Source: PNE, Refinitiv |
EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Disclaimer
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Disclaimer
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Having delivered a record performance in FY18, China Aviation Oil (Singapore) Corporation (CAO) faces a year of more subdued progress. Confronted by more difficult markets in 2019, the management team appears to have adopted a more risk averse stance in oil trading, curtailing some of the optimisation strategies. Trade disputes are also affecting supply volumes and margins to the US. The core trading activity challenges are compounded by policy adjustments affecting growth at Shanghai Pudong airport, the main group associate. The result is a slower growth trajectory, as is reflected in H119 results. Nevertheless, CAO remains a proxy for the rapid growth of the Chinese air transport market.