BayWa — Shaping the future with positive energy

BayWa (DE: BYW6)

Currency in EUR

Last close As at 03/02/2023

EUR42.05

−0.10 (−0.24%)

Market capitalisation

EUR1,456m

Research: Industrials

BayWa — Shaping the future with positive energy

BayWa’s business model continues to evolve, as the group engages in added-value project activity and reduces exposure to fluctuations in demand for agricultural inputs/outputs, heating and fuel oil or building materials in Germany. Energy Infrastructure Partners (EIP) recently announced €530m equity investment in the group’s renewables business unit, BayWa r. e., enables management to accelerate this transition.

Anne Crow

Written by

Anne Margaret Crow

Director, TMT & Industrials

Industrials

BayWa

Group overview

Consumer staples

Spotlight - Update

19 January 2021

Price

€32.85

Market cap

€1,123m

Share price graph

Share details

Code

BYW6

Listing

Frankfurt, Munich, Xetra

Shares in issue

34.2m

Net debt (€m) at end September 2020
(excluding finance leases)

3,579.3

Business description

BayWa has an international renewable energy business focused on solar and wind farms, and trades oil and lubricants in Germany and Austria. It also trades agricultural produce and equipment within Europe and globally and is a retailer of building materials in Germany.

Bull

BayWa addresses the needs for the three primary human requirements of food, warmth and shelter, so underlying demand for the group’s products is resilient to recessionary effects and is driven by a growing global population.

Penetration of renewables market provides growth for energy activities as consumers globally shift to renewable sources of energy.

Geographic diversity protects renewables activity from changes in government policy in individual countries.

Bear

Agricultural trading margins and demand for agricultural inputs, heating oil and building materials are affected by unusual weather.

High levels of debt: €2.4.bn at end FY19 and 146% gearing (prior to equity investment).

Low free float: 38.5%.

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

BayWa is a research client of Edison Investment Research Limited

Shaping the future with positive energy

BayWa’s business model continues to evolve, as the group engages in added-value project activity and reduces exposure to fluctuations in demand for agricultural inputs/outputs, heating and fuel oil or building materials in Germany. Energy Infrastructure Partners (EIP) recently announced €530m equity investment in the group’s renewables business unit, BayWa r. e., enables management to accelerate this transition.

Transition to renewables is part of transformation into an international operation

Through its three core segments, Energy, Agriculture and Building Materials, the group fulfils the fundamental human needs of heat, power, food and shelter. While these are highly defensive markets, which has been advantageous during the coronavirus pandemic, the opportunities for growth within BayWa’s established market of southern and eastern Germany are limited. Consequently, since 2009 management has pursued an acquisition programme that has transformed the group into an international operation and responded to the need to adopt more environmentally sustainable practices in food production, energy generation and building construction. In the process, the group has moved up the supply chain by diversifying into the construction and sale of wind and solar projects. Operating profit from the three core segments has almost trebled since 2009, with almost all the growth attributable to activities introduced from 2009 onwards.

EIP investment accelerates renewables evolution

The Renewable Energies segment, BayWa r.e, is a key element of this growth. EBIT attributable to this business unit rose by 39% year-on-year during FY19 to a record €101.1m, representing 54% of the group total. Management expects the EIP investment will enable BayWa r.e. to scale up the project business from 0.9GW in FY19 to up to 3GW of project sales per year from FY25 onwards. The capital will also enable BayWa r.e. to develop its independent power provider activity, creating a recurring revenue stream from contracts to supply power from 2022 onwards.

Valuation: Premium for renewable energy activity

Our peer multiples analysis shows BayWa is trading on prospective EV/EBITDA and P/E multiples that are similar to or at a premium to our samples of stocks in the conventional energy, agriculture and building materials sectors and at a discount to our sample of stocks in the renewable energy sector.

Consensus estimates

Year
end

Revenue
(€m)

EBIT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

16,626

172.4

0.56

0.90

58.7

2.7

12/19

17,059

188.4

0.68

0.95

48.3

2.9

12/20e

16,539

199.5

0.96

0.97

34.2

3.0

12/21e

17,212

218.0

0.91

1.00

36.1

3.0

Source: Company data, DZ Bank, ODDO BHF, Warburg.

BayWa was founded in 1923 in Bavaria and has its roots in regional cooperative trading of materials used in the agricultural industry: grain, chemical fertilisers, animal feeds and farm machinery. Since then, the group has evolved into one of Europe's largest trading (wholesale and retail) and logistics groups and now has around 3,000 sales locations spread across over 40 countries supported by a global trading, service, distribution and procurement network. Its primary markets are in Germany, Austria and the European Union and to a lesser extent New Zealand and the US, with a focus on rural regions. It is headquartered in Munich and employs around 19,000 people worldwide.

Exhibit 1: Segmental revenues FY19*

Exhibit 2: Segmental EBIT FY19*

Source: Company data. Note: *Excluding revenues attributable to innovation and digitalisation business unit which are not material.

Source: Company data. Note: *Excluding losses attributable to innovation and digitalisation business unit and ‘other activities’.

Exhibit 1: Segmental revenues FY19*

Source: Company data. Note: *Excluding revenues attributable to innovation and digitalisation business unit which are not material.

Exhibit 2: Segmental EBIT FY19*

Source: Company data. Note: *Excluding losses attributable to innovation and digitalisation business unit and ‘other activities’.

Strategy: Evolving service offer as markets adapt to environmental imperatives

Through its three core segments, Energy, Agriculture and Building Materials, the group fulfils the fundamental human needs of heat, power, food and shelter. While these are highly defensive markets, which has been advantageous during the coronavirus pandemic, the opportunities for growth within BayWa’s established market of southern and eastern Germany are limited. Moreover, these markets are not static. As each of them is transformed by the need to adopt environmentally sustainable practices, BayWa has developed new, strategically significant business activities.

Exhibit 3: Analysis of EBIT 2009–19*

Source: Company data. Note: *Excluding losses from Innovation & Digitalisation segment.

For example, noting the shift from conventional to renewable energy, the group started to acquire companies developing solar parks and wind farms in 2009, an activity grouped together as BayWa r.e. in 2012 to give greater impetus to growth in this segment. The group entered the global fruit markets in 2011 with the acquisition of T&G Global (formerly Turners and Growers) in New Zealand. Then in 2012, it stepped up from being Europe’s largest agricultural trader to becoming a global player through the acquisition of international grain trader Cefetra and a 60% stake in the international agricultural trading group Bohnhorst Agrarhandel (wholly owned subsidiary since 2015).

The development of new business activities has been a success. In FY19, 65.1% of EBIT was attributable to companies acquired from 2009 onwards (see Exhibit 3). In parallel, management is enhancing the competitive strength of its older businesses, for example implementing a programme which completed in FY17 to reduce the number of sites in its Building Materials segment.

Segmental reviews

Renewable Energies: Key driver of group EBIT growth

Demand for renewable energy generation capacity globally is growing as governments strive to fulfil their decarbonisation commitments. For example, the International Energy Agency (IEA) calculates that for the energy sector globally to reach net zero emissions by 2050, CO2 emissions from the power sector will need to decline by around 60% between 2019 and 2030, new solar PV installations will need to grow from 110GW annually to nearly 500GW and power sector investment to triple from $760bn to $2,200bn. Wind power is also expected to grow. In November, the Global Wind Energy Council (GWEC) predicted that 71.3GW of wind power would be installed in 2020 despite the impacts of COVID-19. This is only a 6% reduction on the forecast it made in Q120 prior to the coronavirus pandemic and an 18% increase compared with FY19. GWEC also predicts that 348GW of new capacity will be installed between 2020 and 2024, bringing total global wind power capacity to nearly 1,000GW by the end of 2024, which is an increase of 54% for total wind power installations compared to 2019. While some project completion dates have been pushed into 2021 because of the pandemic, 2021 is expected to be a record year for the global wind industry, with 78GW of new wind capacity installed.

BayWa has been involved in the renewable energy sector since 2009. Business activities address three areas: projects, services and solutions. The projects activity encompasses project planning, management and construction of wind farms and solar parks and the subsequent sale of finished plants. The services activity covers planning and technical services, provision of consumables, technical and commercial operational management, plant management and energy trade. The solutions activity primarily involves the distribution of photovoltaic (PV) components such as inverters. BayWa is the largest distributor of PV systems in Europe and one of the top three in the US. The distribution activity provides a useful differentiator, reducing the cost of components for projects and ensuring availability, as well as generating around a tenth of the business unit’s EBIT.

Exhibit 4: Floating solar farm in the Netherlands

Source: BayWa

Sales of completed energy projects more than doubled year-on-year during FY19 from 453MW to 912MW including 12 free-standing solar parks with a total output of 620MW, a floating solar park of 8MW and 10 wind farms with a combined output of 283MW. Projects were completed in Australia, Europe, Mexico and the US. The division assumed responsibility for the commercial and technical management and maintenance of most of these plants following their sale. During FY19 the business unit was responsible for facilities with a total installed output of 8.3GW and traded 3.5GW of renewable energy. Sales from the business unit rose by 29% year-on-year in 2019 to a record €1,975.3m and EBIT by 39% to a record €101.1m. Management expects 2020 project sales to total around 0.9GW, supporting segmental EBIT at similar levels to FY19.

EIP investment accelerates growth

However, the project activity is capital intensive, with capital invested averaging €1.5bn during FY19, representing 33% of the group total. The €500m green bond issued by the group in June 2019, which was the first green bond to be issued in Europe, financed an estimated 637MW of solar and wind capacity. BayWa has recently supplemented this finance with a further transaction. In December 2020, it announced that funds advised by Energy Infrastructure Partners (EIP, formerly Credit Suisse Energy Infrastructure Partners) will take a 49% in BayWa r. e., in which EIP will make an equity contribution of €530m.

Management expects that the EIP investment will enable BayWa r.e. to scale up the project business to up to 3GW of project sales per year from 2025 onwards, accelerating the exploitation of a project development pipeline totalling 13.6GW. The capital will also enable BayWa r.e. to become the largest PV distributor globally and to develop its independent power provider (IPP) activity, creating a recurring revenue stream from contracts to supply power from 2022 onwards. BayWa r.e. is already engaged in this activity, signing a 10-year virtual power purchase agreement with AB InBev in January 2020 enabling the brewer to make all of its beer across Europe using renewable energy by mid-2022. Scaling to 250GWhr of electricity per year by 2022, this agreement was the largest pan-European corporate solar deal at the time. Management projections presented in December 2020 show that IPP activity will represent 23% of segmental revenues by 2023 and project sales 56%, contributing to segmental EBIT of over €170m. By 2028, management intends to be selling around 3GW electricity per year from its own power generation assets.

Conventional energy: Supporting low-carbon transportation

BayWa’s conventional energy business unit is primarily engaged in selling heating oil, fuels, lubricants and wood pellets in Austria and the German states of Bavaria, Baden-Württemberg, Hesse and Saxony. Heating materials are predominantly sold through in-house offices. Diesel fuel is sold to over 100 group filling stations and partner stations in Germany. BayWa also offers a fleet filling station card, which is accepted at around 3,300 filling stations across Germany. The sale of conventional heat carriers complements the domestic agricultural trading and supply and building materials activities, with many common customers forming a stable customer base.

The business unit continues to evolve in response to the transition from fossil fuels to renewable energy. In December 2019, the group sold its TESSOL subsidiary which had a network of 176 petrol stations in southern, central and eastern Germany to the AVIA Group for €70.2m. The transaction was part of a capital reallocation in the corporate portfolio to increase investment in strategic business areas. In January 2020, the business unit was restructured to create a Mobility Solutions activity focused on low-carbon transport. This activity includes planning and operation of electric vehicle charging infrastructure, establishment of a network of filling stations for liquefied natural gas (LNG), which is a lower carbon emission alternative to conventional transportation fuels, and filling station charge card solutions. For example, BayWa’s established fleet filling station card may also be used by drivers of electric vehicles, giving users access to over 30,000 charging stations in Germany and around 40,000 in the rest of Europe.

Revenues attributable to the business unit fell by €584.5m during the nine months ended September 2020 (9M20) to €1,323.6m, reflecting the loss of TESSOL sales (c €290m) and lower fuel prices. EBIT increased by €4.5m to a record €26.0m, supported by above average volumes of heat energy carriers as consumers stocked up in response to low prices and VAT rates and the expectation of price increases in 2021 related to the introduction of carbon taxes. It is possible that there will have been further benefit in Q420 from consumers purchasing ahead of the introduction of carbon taxes in 2021 and the return of the VAT rate to 19%.

Agriculture: Stepping onto the global stage

The Agricultural segment covers the key elements of the supply chain, from production to marketing of agricultural produce. The segment is split into four business activities:

BayWa Agri Supply & Trade (BAST) (15% segmental FY19 EBITDA) is an international trader of grain, oilseed meal and speciality arable products. It purchases agricultural produce, sells it to grain and oil mills, producers of starch and animal feedstuffs, malt houses, breweries and biofuel manufacturers, and arranges the logistics. In support of the logistics activity, BAST also operates two deep water ports. Over the last decade, global grain trading has been adversely affected by significant numbers of speculators entering the market, causing extreme price volatility. Management is mitigating the risk associated with this by diversifying into trading speciality products, for example acquiring Thegra Tracomex Group, which trades various niche commodities including organic barley, oats and pulses and by-products in 2016.

Global Produce (33% segmental FY19 EBITDA): BayWa is one of the largest individual sellers of dessert pome fruit, primarily apples, to wholesalers and retailers in Germany. It also records, sorts, stores, packages and provides marketing services for fruit customers at five sites in the Lake Constance and Neckar regions. The segment was transformed in 2011 with the acquisition of T&G Global. T&G is in one of the largest growers of fresh produce in New Zealand and the largest exporter of apples in the world, responsible for one-third of New Zealand’s annual crop. It works with over 1,000 growers globally, buying and selling produce in North and South America, Asia, Australasia and Europe, thus enabling BayWa to trade fruit all year round. BayWa now uses the enhanced trading network to include exotic speciality fruit and vegetables such as avocados and mangos, particularly for the ‘ready-to-eat’ market, in support of which it took a 68.4% stake in the Dutch supplier TFC Holland in 2016. This broad portfolio differentiates BayWa from its competitors and is increasingly important as customer concentration in both the retail and wholesale sectors intensifies. The group is also strengthening its position in Asian markets where demand is growing rapidly, recently opening sales offices in Singapore and Vietnam and forming a JV with fruit company CarSol to distribute and market berries.

Agri Trade & Service (24% segmental FY19 EBITDA): supplies farmers in several regions of Germany and Austria with agricultural inputs such as seeds, fertilisers, crop protection products and feedstuffs throughout the agricultural year. It also takes responsibility for recording and marketing the harvest for farmers. To support this activity, the business unit operates a network of over 170 sites providing transport, processing and storage capacity. BayWa sells the agricultural outputs to local, regional, national and international companies in the foodstuff, wholesale and retail industries. The unit is gradually expanding its portfolio of organic products and marketing services for organic produce. Management is partway through a programme extending to FY22 to improve operating profit from this business unit, modernising sites, optimising processes in the logistics chain and expanding e-commerce activities. This is similar to a programme undertaken in the Building Materials segment which completed in FY17. BayWa currently generates the highest revenues of any agricultural company in Germany.

Agricultural Equipment (28% segmental FY19 EBITDA): offers a complete portfolio of machinery, equipment and systems for all areas of agriculture as well as road sweepers, mobile systems for wood shredding, forklift trucks for municipal services and commercial operations and machinery for forestry operations. The business unit operates a workshop network of over 280 sites and over 700 mobile service vehicles. Historically, the business unit has focused on southern and eastern Germany where growth prospects are limited because sales are related to replacement investments and modernisation projects. Management is addressing this by expanding activity in the Netherlands, Canada, Zambia and South Africa.

Revenues attributable to the Agriculture segment declined slightly, by 0.9% year-on-year during 9M20 to €8,116.1m. while EBIT increased by 17.8% to €77.5m. Revenues attributable to BAST were lower, partly because of restricted trading caused by the coronavirus pandemic, but the business unit compensated for lower volumes through higher margins as commodity prices rallied in the third quarter and demand for feedstuff grain was boosted by a recovery in the pig population in China following an earlier outbreak of swine flu. Volume and price increases enabled Global Produce to increase both revenues and underlying EBIT. Revenues from the domestic agricultural trade business grew slightly, reflecting a modest increase in volumes of grain traded, but EBIT reduced because of weaker demand for herbicides caused by the dry weather and low fertiliser prices caused by low oil prices. Demand for agricultural equipment was boosted by the reduction in VAT mid-year, supporting growth in both revenues and EBIT for the business unit.

Management expects the segmental result for FY20 to be higher than FY19 despite the coronavirus pandemic. It expects that commodity price volatility will continue during Q4, benefiting international trading activity, while the Global Produce business is expected to benefit from marketing the German apple harvest at above-average prices and a seasonal rise in demand for exotic fruits in the run-up to Christmas. The order book at the end of September indicated that a strong final quarter for the Agricultural Equipment business is likely. While a year-end rally in the domestic agricultural trade business is unlikely and the cost of restructuring the operation will have a negative impact on earnings, both these effects will be more than offset by performance gains in the other three business units.

Building Materials: Embracing more environmentally sensitive construction practices and increasing digitalisation

BayWa is the second-largest building materials trader in Germany with over 120 retail locations in southern and eastern Germany as well as around 30 sites in Austria. The business unit also serves a number of franchise partners in the building materials and retail business in Austria, which collectively operate around 1,000 sites. The business segment serves commercial and private customers, supplying the full spectrum of building materials so it can act as a ‘one-stop-shop’ for construction companies. Management has decided not to grow the segment through geographical expansion – in fact, it undertook a restructuring programme which completed in FY17 to reduce the number of sites it operated. It has elected instead to enhance the product portfolio, strengthen online activity and to move up the value chain.

BayWa is responding to consumer demand for more environmentally friendly construction by introducing building materials that minimise the emission of pollutants as well as improving energy efficiency. It currently offers around 7,000 products which meet its low emissions criteria. In addition to offering an online portal for business and private customers, the segment has a virtual planning tool for houses, enabling consumers to visualise what products in the online catalogue will look like in situ. It also has a property configurator, ‘Mr + Mrs Homes’, which allows private developers and construction firms to design homes in 3D, obtain estimates of costs in real time and submit plans for approval by the relevant authorities.

The trading activity is supplemented by the provision of services and participation in niche construction projects. During FY19, the building services activities were pulled together into a single entity positioned to install plumbing, heating and ventilation on a national basis. Since 2018, the business unit has been working with construction companies in Germany on projects on a joint venture basis. Typically, these projects showcase energy-efficient building design, helping drive demand for innovative materials. For example, BayWa is involved in a project of six buildings on a 10,000 square metre site in Schrobenhausen, where solar panels on the roofs provide electricity for charging cars and for use within the properties and heating is provided by a wood-fired system. The project is unusual in co-locating residential and commercial property, thus reducing traffic. In addition, profits from the sale of projects will form an additional income stream. Management expects that building sales will commence in Q420, contributing an estimated €2m EBIT to the segmental total.

Revenues attributable to the business unit rose by 10.6% year-on-year during 9M20 to €1,410.5m. Order intake in the German construction industry between January and August was almost as high as the previous year despite the coronavirus pandemic. Moreover, consumers spent money that would have been spent on holiday travel on home improvement projects. The reduction in VAT mid-year and low interest rates also boosted demand for building materials. Unsurprisingly, online sales developed positively during the period. EBIT attributable to the business unit as a whole jumped by 68.2% to €39.2m. In its Q320 results statement, management noted that it expected that volume-related year-on-year revenue and earnings growth was likely to continue to the end of FY20, resulting in significant increases in both revenues and earnings for the year as a whole.

Innovation & Digitalisation

This segment is responsible for marketing and developing digital products and services that enhance productivity in agriculture. It is also responsible for the group’s e-commerce activities, although the revenues and profits attributable to these activities are assigned to the individual segments. The activity was kick-started in 2015 through the acquisition of FarmFacts, an established developer of desktop or cloud-based digital farming solutions encompassing the entire agricultural value chain. The software is suitable for small and mid-sized farms, not just for large ones, and currently has over 18,700 users who collectively farm more than 25% of the agricultural land in Germany. The software helps farmers improve their productivity while complying with increasingly stringent legislation on nitrate emissions which limit the amount of fertiliser that farmers can apply. For more detail, please refer to our AgTech report.

Revenues attributable to the business unit rose by 15.7% year-on-year during 9M20 to €8.1m, primarily because of more intensive marketing of smart farming solutions during Q3 following the launch of an additional software module. This enables farmers to obtain agricultural input offers from various providers and conclude purchase and delivery arrangements online, complementing the more traditional services offered by the domestic agricultural trading activity. Operating losses narrowed by 17.6% to €8.4m.

Group financial performance

All three operating segments show improved EBIT during 9M20

Group revenues declined slightly, by €275.2m year-on-year during 9M20 to €12,197.8m, reflecting the loss of TESSOL sales (c €290m). EBIT jumped by 32.9% to €102.7m, with performance improvements in each of the three core operating segments. This growth was achieved despite absorbing c €18m additional costs associated with modified work practices required to combat the coronavirus and the absence of any exceptional income from the disposal of subsidiaries, which benefited 9M19 by €7.0m.

Net debt (cash less debt excluding finance leases) increased by €194.3m during the nine-month period to €3,579.3m at the end of September 2020. Gearing (net debt/equity net of minority interest) rose by 44.1pp to 374.7%. The primary cash movement was a €419.1m increase in inventories associated with the development of as yet unsold wind parks and solar farms that were under construction at the end of Q320. We expect this inventory level to have reduced by the year end as projects are sold during Q420.

Outlook

In its statement accompanying the nine-month results, management stated that for FY20 as a whole it expects EBIT to be the same or higher than the €188.4m achieved in FY19, despite the coronavirus pandemic. Looking further out, when commenting on the EIP investment in December 2020 management presented projections based on the accelerated growth achievable following the EIP investment which showed group EBIT reaching €358m by FY25. Management expects the accelerated growth to result in an increase in EBIT from FY21 onwards but a reduction in EPS in the short term. Management’s projections show the equity ratio (equity divided by total shareholder equity and liabilities) improving from 15.3% at end FY19 to 22.5% at end FY25, and net debt/EBITDA falling from 6.0x at end FY19 to 3.7x at end FY25.

Valuation

Exhibit 5: Peer group multiples

Name

Market cap
($m)

EV/EBITDA 1FY
(x)

EV/EBITDA 2FY
(x)

P/E 1FY
(x)

P/E 2FY
(x)

Renewable energy

7C Solarparken

379

13.0

12.1

31.3

30.2

ABO Wind

513

15.2

11.3

30.9

21.9

BCPG

1,374

21.5

18.7

18.9

20.6

Boralex

4,391

16.3

15.4

76.0

83.9

CECEP Wind-Power

2,732

N/A

N/A

20.9

N/A

China Longyuan Power Group

10,696

8.4

7.6

14.3

12.7

Concord New Energy Group

680

8.3

7.1

6.3

5.4

EDP Renovaveis

24,285

15.1

15.4

38.6

47.0

Encavis

3,979

22.4

19.4

66.3

53.9

Energiekontor

1,024

15.9

13.4

44.6

34.4

Eolus Vin

681

18.6

17.7

31.4

25.4

Falck Renewables

2,370

14.0

12.4

57.1

40.7

Greencoat Renewables

1,063

N/A!

N/A!

21.3

20.1

Innergex Renewable Energy

4,111

19.4

16.4

N/A

98.5

Omega Geracao

1,589

17.5

13.3

170.4

30.3

PNE

772

35.6

21.8

N/A

238.3

Scatec

6,545

31.4

18.6

287.9

105.5

Solaria Energia y Medio Ambiente

3,940

72.2

41.6

146.6

100.7

Solarpack Corporacion Tecnologica

1,051

18.4

17.0

52.6

47.3

Terna Rete Elettrica Nazionale

14,789

11.7

11.4

15.9

15.5

TransAlta Renewables

4,592

14.4

13.7

50.2

26.9

Mean

17.6

14.6

38.0

34.1

Conventional energy

DCC

7,651

9.6

9.0

16.0

14.9

Mean

9.6

9.0

16.0

14.9

Agriculture

Carr's Group

171

8.2

7.8

11.1

10.3

ForFarmers

646

6.3

6.1

12.2

11.4

NWF Group

124

5.9

5.7

10.7

10.2

Origin Enterprises

495

6.3

6.1

8.0

7.5

Ridley Corporation

229

7.3

6.8

14.1

11.6

Wynnstay Group

94

5.8

5.5

10.5

10.1

Mean

7.9

7.5

13.4

12.1

Building materials

Hornbach Baumarkt

1,277

4.3

4.5

6.9

7.8

Kingfisher

7,725

5.1

5.4

10.6

11.6

Samse

673

6.6

6.1

14.9

12.4

Travis Perkins

4,775

10.8

8.4

31.4

15.6

Mean

6.7

6.1

16.0

11.9

BayWa

1,353

8.5

8.2

34.2

36.1

Source: Refinitiv. Note: Prices at 18 January 2021. Grey shading indicates exclusion from mean.

Looking at our peer multiples analysis, we note that BayWa is trading on prospective EV/EBITDA and P/E multiples that are similar to or at a premium to the respective means of our samples of stocks in the conventional energy, agriculture and building materials sectors and at a discount to the mean of our sample of stocks in the renewable energy sector for prospective EV/EBITDA and 2020 P/E multiples, but not the 2021e P/E multiple. This is to be expected, given that BayWa has activities in all of these sectors. In addition, 2021 bears the dilutive impact of the EIP investment without much of an uplift in EBIT as it will take time for the additional renewable energy projects enabled by the investment to be constructed and either sold or used to generate IPP revenues. Consensus estimates show EPS falling to €0.91/share in FY21 before rising to €1.47/share in FY22, which is equivalent to a PER of 22.3x at the current share price.

Our sum-of-the-parts analysis shows that, based on the proportion of operating profit attributable to the four core segments in FY19, BayWa is trading at a discount to the weighted mean with respect to FY21e EV/EBITDA and a premium with respect to FY21e P/E, reflecting the dilutive impact of the EIP investment. As noted above, management is projecting segmental EBIT from the renewable energy segment to exceed €170m by 2023, so the proportion of operating profit attributable to the renewable energy segment is likely to be higher in FY21 than FY19, resulting in higher weighted means than shown in our calculation. BayWa’s FY21e P/E ratio value is higher than the mean for our renewable energy sample because of the short-term dilutive impact of the EIP investment discussed above.

Exhibit 5: Sum-of-the-parts analysis

% of FY19 EBIT*

Mean peer group
Year 2 P/E (x)

Mean peer group
Year 2 EV/EBITDA (x)

Renewable energy

39.4%

34.1

14.6

Conventional energy

10.3%

14.9

9.0

Agriculture

37.7%

12.1

7.5

Building materials

12.5%

11.9

6.1

Weighted value

21.0

10.3

BayWa

36.1

8.2

Source: Refinitiv. Note: *Excluding loss from Innovation & Digitalisation segment, central administrative costs and consolidation effects. Prices at 18 January 2021.

General disclaimer and copyright

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

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

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

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

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

Copyright: Copyright 2021 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

General disclaimer and copyright

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

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

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

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

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

Copyright: Copyright 2021 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

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