Ellomay Capital — 2017 off to a strong start

Ellomay Capital — 2017 off to a strong start

Ellomay’s Q117 results reflected an improvement in solar radiation levels and higher spot power prices in Italy. Gross profit improved by 37% (Q117 vs Q116) and sequentially by 44% (Q117 vs Q416), although G&A costs increased by 26% as new project costs increased, so operating profit was down 12%. Ellomay continued to invest in the development of new projects in Israel, the Netherlands and Spain, with further newsflow expected on their development over the course of the year. Also of note was the strong cash generation over the quarter. We maintain our earnings forecasts and fair value per share at $10.93, which offers 25% upside to current levels.

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Ellomay Capital

2017 off to a strong start

Q1 results

Alternative energy

3 July 2017

Price

US$8.76

NIS30.60

Market cap

US$94m

NIS327m

*Priced as at 30 June 2017

Net debt ($m) at 31 March 2017

34.8

Shares in issue

10.7m

Free float

31%

Code

ELLO

Primary exchange

NYSE

Secondary exchange

TASE

Share price performance

%

1m

3m

12m

Abs

1.3

8.8

16.0

Rel (local)

0.8

6.1

0.5

52-week high/low

US$9.6

US$7.0

Business description

Ellomay Capital owns an international portfolio of power generation assets comprised of solar plants in Italy and Spain and a gas-fired power plant in Israel. It is also developing anaerobic digestion plants in the Netherlands. It operates principally in regulated markets.

Next events

Q217 results

September 2017

Analysts

Jamie Aitkenhead

+44 (0)20 3077 5700

Roger Johnston

+44 (0)20 3077 5722

Ellomay’s Q117 results reflected an improvement in solar radiation levels and higher spot power prices in Italy. Gross profit improved by 37% (Q117 vs Q116) and sequentially by 44% (Q117 vs Q416), although G&A costs increased by 26% as new project costs increased, so operating profit was down 12%. Ellomay continued to invest in the development of new projects in Israel, the Netherlands and Spain, with further newsflow expected on their development over the course of the year. Also of note was the strong cash generation over the quarter. We maintain our earnings forecasts and fair value per share at $10.93, which offers 25% upside to current levels.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/15

13.82

1.86

0.35

0.00

25.0

N/A

12/16

12.87

(1.25)

(0.18)

0.23

N/A

2.6

12/17e

13.50

3.75

0.26

0.23

33.7

2.6

12/18e

15.09

5.79

0.41

0.23

21.4

2.6

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

Encouraging core solar performance…

Solar conditions and Italian spot prices drove Ellomay’s revenues up by 5.6% in the first quarter. Combined with lower operating costs due to municipal tax decreases in Italy, this helped push gross profits up by 37% q-o-q. While we leave our earnings forecasts for Ellomay’s solar operations unchanged, should strong solar and price conditions remain in place and drive a further strong performance in Q2 (results to be reported in September), we would review our earnings at that point.

…while new projects near construction phase

Long-term value for Ellomay shareholders depends on management identifying and executing new projects. Ellomay recently invested in a 9MW solar PV plant in Israel and has an investment in a further potential 300MW solar development in Spain. Several waste-to-energy plants in the Netherlands have progressed furthest, with the Dutch Oude Tonge Project having achieved financial close. For now, Ellomay shareholders suffer from high upfront costs such as the $0.6m associated with Manara Cliff, which helped drive down Q1 operating profits by 12% q-o-q.

Valuation: $10.93 per share and 25% upside

Given the potentially one-off nature of solar conditions and spot Italian power prices, we see no need to alter our earnings forecasts, especially given the relatively small contribution the first quarter makes to group performance for the year. Likewise, we view expenditures relating to new projects, which increased Q1 G&A and decreased operating profits, as exceptional and any such future expenses could be capitalised. The result is that we maintain our fair value of $10.93 per share, which offers equity holders 25% upside to the current price of $8.76.

Q117 shows year off to a solid start

Ellomay’s results for the three months to 31 March 2017 showed a revenue increase in its volatile solar generation business driven by higher radiance levels and spot power prices in Italy. General and administrative costs increased over the period as a function of continued investment in new power and infrastructure assets in Israel, the Netherlands and Spain.

Exhibit 1: Ellomay Q117 vs Q116

US$000s (as reported)

3M16

3M17

% y-o-y

Revenues

2,546

2,688

5.6

Operating expenses

(608)

(537)

(11.7)

General and administrative costs

(1,084)

(1,361)

25.6

Share of profits (losses) of equity accounted investees

845

835

(1.2)

Reported EBITDA

1,743

1,630

(6.5)

Depreciation

1,221

1,169

(4.3)

Other

44

5

(88.6)

Operating Profit

522

461

(11.7)

Financing income (expenses), net

(2,682)

(2,128)

 

Profit before taxes

(2,160)

(1,667)

(22.8)

Tax

53

125

 

Net loss for the period

(2,107)

(1,792)

(15.0)

Attributable to owners of the company

(1,988)

(1,608)

(19.1)

Basic profit per share from continuing operations

(0.19)

(0.15)

(21.1)

Dividend per share

0.00

0.00

 

Source: Ellomay Capital

Financials: No changes to earnings, operating cash flow strong

We do not view the higher solar output and higher Italian spot electricity prices witnessed in Q117 as a basis to upgrade our full year forecasts as they could be one-off in nature. However, we will keep a watching brief on solar radiance levels and power prices in the Q2 results, which we expect in September. Further solar generation outperformance could merit an upgrade to our forecasts for the full year. We will also keep an eye on Ellomay’s G&A costs which, at $1.4m for the quarter, came in above the figure of $1.1m reported in Q116. Management attributed the bulk of the increase to $0.6m invested in the planned Manara Cliff pumped storage power generation project in Israel. This compared to a figure of $0.4m in Q116. The rest of the increase was incurred by the use of consultants in relation to the waste-to-energy plants in the Netherlands. Despite slightly lower operating expenses due to tax changes in Italy, the net effect of all these factors was a 6.5% decline in q-o-q EBITDA and an 11.7% drop in q-o-q operating profits. Lower net financing costs helped reduce the net loss for the period to $1.8m versus $2.1m in Q116.

Operating cash flow for the quarter was stronger to the tune of $1.6m due to higher revenue collection in Italy. Also, encouragingly, Ellomay issued $33.7m of debentures at a low interest rate of 3.44% per year. At end March the group had net debt of $34.8m including cash of $58.9m. On 1 June 2017 it reported a cash level of $42m.

Exhibit 2: Financial summary

US$000s

2015

2016

2017e

2018e

31-December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

13,817

12,872

13,497

15,092

EBITDA (company definition)

 

 

9,685

7,492

11,249

13,042

EBITDA (Edison definition, excluding associates)

7,218

5,888

8,378

9,737

Operating Profit (before amort. and except.)

2,306

1,004

3,340

4,692

Intangible Amortisation

0

0

0

0

Exceptionals

21

99

0

0

Other

3,485

704

0

0

Operating Profit

5,812

1,807

3,340

4,692

Net Interest

(2,893)

(3,760)

(2,465)

(2,206)

Share of assocs/jvs gains/(losses)

2,446

1,505

2,871

3,305

Forex gains/(losses

0

0

0

0

Other

0

0

0

0

Profit Before Tax (norm)

 

 

1,859

(1,251)

3,746

5,791

Profit Before Tax (FRS 3)

 

 

5,365

(448)

3,746

5,791

Tax

1,933

(625)

(937)

(1,448)

Profit After Tax (norm)

3,792

(1,876)

2,810

4,343

Profit After Tax (FRS 3)

7,553

(603)

2,810

4,343

Average Number of Shares Outstanding (m)

10.7

10.7

10.7

10.7

EPS - normalised ($)

 

 

0.354

(0.176)

0.263

0.407

EPS - normalised and fully diluted ($)

 

0.352

(0.176)

0.263

0.407

EPS - (IFRS) ($)

 

 

0.705

(0.056)

0.263

0.407

Dividend per share ($)

0.000

0.225

0.225

0.225

EBITDA Margin (%)

52.2

45.7

62.1

64.5

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

16.7

7.8

24.7

31.1

BALANCE SHEET

Fixed Assets

 

 

126,814

120,628

118,711

117,222

Intangible Assets

0

0

0

0

Tangible Assets

78,975

77,066

72,278

67,483

Investments

33,970

30,788

33,659

36,965

Other

13,869

12,774

12,774

12,774

Current Assets

 

 

33,513

34,641

33,152

35,015

Stocks

0

0

0

0

Debtors

8,218

9,952

8,024

8,972

Cash

18,717

23,650

24,088

25,004

Other

6,578

1,039

1,039

1,039

Current Liabilities

 

 

(10,103)

(11,102)

(9,968)

(10,095)

Creditors

(4,092)

(4,963)

(3,829)

(3,956)

Short term borrowings

(6,011)

(6,139)

(6,139)

(6,139)

Other

0

0

0

0

Long Term Liabilities

 

 

(56,159)

(56,302)

(51,302)

(46,302)

Long term borrowings

(48,117)

(48,385)

(43,385)

(38,385)

Other long term liabilities

(8,042)

(7,917)

(7,917)

(7,917)

Net Assets

 

 

94,065

87,865

90,593

95,840

CASH FLOW

Operating Cash Flow

 

 

9,989

10,684

9,171

8,916

Net Interest

(2,904)

(3,049)

(2,465)

(2,206)

Tax

(2,174)

571

(937)

(1,448)

Capex

0

(5,388)

(250)

(250)

Acquisitions/disposals

0

0

0

0

Equity financing

0

0

0

0

Financing

0

0

0

0

Dividends

0

(2,404)

(2,402)

(2,402)

Other

(4,485)

(1,856)

2,871

3,305

Net Cash Flow

426

(1,442)

5,988

5,915

Opening net debt/(cash)

 

 

32,932

33,636

34,079

28,641

HP finance leases initiated

0

0

0

0

Other

-461

-999

550

0

Closing net debt/(cash)

 

 

33,636

34,079

28,641

22,725

Source: Company accounts, Edison Investment Research

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Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). 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Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Tel Aviv +44 (0)20 3734 1007
Medinat Hayehudim 60

Herzilya Pituach, 46766

Israel

Research: Real Estate

Publity — An experienced investor in German real estate

publity is an asset manager with long-term experience of investing in German office buildings. It is the largest servicer of non-performing loans (NPLs) in Germany and is able to acquire assets from restructuring German banks. It focuses entirely on asset management and is not distracted by property and facility management. It evaluates and analyses more than 1,000 assets per year, acquiring individual assets for its clients, rather than making portfolio acquisitions. It currently has AUM of €3bn and a potential deal pipeline of more than €26bn. Current valuations are attractive relative to sector comparatives, despite having the highest yield in its peer group.

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