PNE Group — Scaling up

PNE Group — Scaling up

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

Industrials

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3 September 2019

Price

€3.57

Market cap

€273m

Share price graph

Share details

Code

PNE3

Listing

Xetra

Shares in issue

76.5m

Business description

PNE Group is a developer of wind energy projects located in Northern Germany. Its track record includes the realisation of >2,900MW onshore windfarms and 2,644MW offshore wind projects. It has large operations & maintenance services operations in Germany (1,500MW windfarms under management) and is active in 14 countries. The company plans to expand its activities into new technologies (including solar) and emerging markets.

Bull

Significant track record of carrying out large onshore/offshore windfarm projects, with more than €10bn investments completed or initiated.

Rise in CO2 prices increases renewable competitiveness.

Expansion into new technologies and markets a key growth driver.

Bear

Strong competition for new projects and returns under pressure.

No track record in solar projects and emerging markets.

Large volatility in profitability historically.

Analyst

Dario Carradori

+44 (0)20 3077 5700

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.

Consensus estimates

Year
end

Revenue
(€m)

EBITDA
(€m)

EBIT
(€m)

Net income (€m)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

114.1

28.6

23.1

17.1

0.040

16.5

1.1

12/18

91.4

16.5

7.8

(1.0)

0.040

N/A

1.1

12/19e

121.0

30.2

18.2

5.4

0.040

48.9

1.1

12/20e

235.2

89.1

84.0

59.3

0.135

4.5

3.8

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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United States of America

Sydney +61 (0)2 8249 8342

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

General disclaimer and copyright

This report has been prepared and issued by Edison. 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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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.

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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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 12, 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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

China Aviation Oil (Singapore) — Constraints on growth persist

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.

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