EQUITY RESEARCH FY14 Update June 5 th, 2015 Weak FY14, but positive outlook thereafter NEUTRAL Current Share Price ( ): 3.4 Target Price ( ): 3.8 Enertronica 1Y Performance 120 Weak FY2014 figures, due to the South Africa Project delay FY14 consolidated revenues were at 10.2m (+62% yoy), due to the contribution of the Energy Retail and PV Components business. EPC contractors activity reported revenues at 0.8m (vs. 4.6m in 2013), as result of the delay of the South Africa (SA) Project, started in March 2015. Consequently, EBITDA was at -1.5m, vs. 1m in 2013, as effect of SA set-up costs, not yet balanced by related revenues. The Company closed the year with a net loss of -1.9m. Net debt came in at 7.8m vs. 3.3m at the end of FY13, due to the issue of 6m convertible bond in May 2014. 100 80 60 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Enertronica Share price FTSE AIM Italia Index Note: 05/06/2014=100 Company data Bloomberg code ENT IM Reuters code ENER.MI Share Price ( ) 3.4 Date of Price Shares Outstanding (m) 05/06/2015 3.5 Market Cap ( m) 11.9 Market Float (%) 13% Avg Daily Volume YTD 3,296 Target Price ( ) 3.8 Upside (%) 10% Recommendation NEUTRAL Share price performance 1m 3m 1Y Enertronica - Absolute (%) 5% 1% 1% FTSE AIM Italia (%) 0% 4% -10% 1Y Range H/L ( ) 3.8 2.7 YTD Change/% -0.4-9% Luigi Tardella Head of Research tardellaresearch@advisory.envent.it Serena Polini Research Analyst research@enventcapitalmarkets.uk EnVent S.p.A. ROME MILAN TURIN LONDON Via Barberini, 95 00187 Rome (Italy) Phone +39 06 896841 Information pursuant to Article 69 et seq. of CONSOB (Italian Securities & Exchange Commission) Regulation no. 11971/1999 This document may not be distributed in the United States, Canada, Japan or Australia or to U.S. persons Outlook Despite the weak FY14 results, the outlook remains positive: in the EPC and PV Components businesses, the SA Project is now fully operative and the Company is in the position to exploit a further expansion in growing markets like South Africa and South America. In the domestic market, Enertronica aims to increase the weight of Energy Retail and Energy Saving Services, in order to achieve product diversification and a more stable turnover. According to the management, Enertronica foresees in 1H2015 revenues at 21.5m and EBITDA at 1.5m. Neutral rating confirmed, target price to 3.8 per share Our assumptions at the top line foresee 2015 revenues at 124.8m, of which 94m refer to the SA Project; in addition we expect a positive sales trend also for PV Components and Energy Retail business. We forecast in 2015 an EBITDA margin at around 9%, thanks also to the start-up costs of SA Project partly already incurred in 2014. However, in 2016-17, we expect a decrease in margins as the SA Project approaches completion. In addition, we forecast an increasing weight at top line of revenues from the Energy Retail business, characterized by lower profitability. Following our estimates revision, our analysis yields a target price of 3.8 per share, with a NEUTRAL recommendation on the stock. Key risks The main risks for the Company are: 1) unexpected SA Project costs increase; 2) possible difficulties or delays in entering international markets targeted for EPC and PV Components supply; 3) high competition and low entry barriers for the activity of EPC and Energy Saving Services for retail and small businesses. Key financials euro m 2014A 2015E 2016E 2017E Revenues 10.2 124.8 104.9 80.7 yoy% 66% 5568% -56% -67% EBITDA -1.5 11.1 8.2 4.9 EBITDA Margin -59% 9% 8% 6% Net Income (Loss) -1.9 7.5 5.2 3.3 Net Debt/(Cash) 7.8 6.6 4.4-2.0 NFP/ EBITDA nm 4.6 4.9 nm D/(D+E) 4.9 4.8 4.7 nm Cash Flow -4.5 1.3 7.5 6.4 EPS -0.5 2.2 1.5 0.9
FY14 Results Delayed contribution from EPC FY14 consolidated revenues were roughly in line with our estimates at 10.2m (+62% yoy), due to the contribution of the Energy Retail and PV Components business. On the contrary, EPC contractors activity reported revenues at 0.8m (vs. 4.6m in 2013), as result of the delay of the South Africa (SA) Project, started in March 2015. Profitability affected by start-up costs of SA Project The EBITDA ( -1.5m vs 1m in 2013) was negatively impacted by the delay of the SA Project, with more than 1m of development costs not yet balanced by the related revenues. EBIT came in at -1.8m vs. 0.8m in 2013. The Company closed the year with a net loss of -1.9m (vs. 0.4m profit in 2013), reflecting also higher financial charges related to the convertible bond. Enertronica 2014 Profit & Loss euro m 2013A 2014A EPC 4.6 1.1 % on Revenues 73% 14% PV Components 1.2 2.2 % on Revenues 19% 66% Energy Retail 0.1 6.8 % on Revenues 8% 67% Revenues 6.3 10.2 YoY% 62% EPC Costs -1.1 PV Components Costs -0.1 Energy Costs -6.0 Tot. Material Costs -2.4-3.4 Other Operating Costs -2.3-3.2 Labour Costs -0.1-0.9 EBITDA 1.0-1.1 EBITDA Margin 16% -19% Amortization and depreciation -0.2-0.3 EBIT 0.8-1.8 EBIT Margin 16% -17% Interest -0.2-0.6 EBT 0.6-2.3 EBT Margin 14% -63% Income tax -0.2 0.4 Net Income (Loss) 0.4-1.9 Net Income (Loss) Third parties (49% SA) -0.3 Source: Company data 6m Convertible Bond The decrease of the working capital is determined by an increase yoy of the payables ( 3.7m vs. 2.5m at the end of 2013), while the receivables were still around 7.2m. Net debt came in at 7.8m vs. 3.3m at the end of FY13, following the issue of 6m convertible bond in May 2014. 1
Enertronica 2014 Balance Sheet euro m 2013A 2014A Receivables 7.2 7.2 Inventory 0.2 0.1 Payables -2.5-3.7 Working Capital 5.0 3.6 Other assets 0.3 1.8 Other liabilities -1.3-1.1 Other assets and liabilities, net -0.9 0.7 Intangible assets 0.5 0.4 Fixed assets 1.0 3.6 Financial investments 0.0 0.7 Non-current assets 1.8 4.7 Leaving indemnities -0.0-0.1 Provisions -0.0-0.1 Invested capital 5.8 8.9 Other financial assets -0.1 0.1 Net Debt/(Cash) 3.3 7.8 Shareholder's financing 0.0 0.1 Equity 2.6 0.8 Sources 5.8 8.9 Source: Company data Enertronica 2014 Cash Flow euro m 2014A EBIT -1.8 Amortization and Depreciation 0.3 Leaving indemnities, net 0.0 Current taxes 0.0 Operating cash flow -1.4 (Capex)/Disposal -3.2 Δ working capital 1.1 Δ other assets -0.9 Δ other liabilities 0.4 Free cash flow -3.9 Interest -0.6 Net cash flow -4.5 Dividends to SA Minority 0.0 Change in Net financial position -4.5 Net financial position (Beginning) 3.4 Net financial position (Ending) 7.9 Change in Net financial position -4.5 Source: Company data In 2014 the Company invested around 0.6m in a PV plant, 0.3m in equipment and around 2.3m was related to the subsidiaries start-up and the convertible bond issue. 2
Outlook and estimates revision Despite the weak FY14 results, the management confirmed a positive outlook for 2015, targeting for 1H2015 revenues at 21.5m and EBITDA at 1.5m. SA Project shifted to 2015-16 Positive trend in EPC PV Components Energy Retail We recall that in March 2015 the subsidiary Enertronica SA Pty Ltd started the construction of the 82.5 MWp PV plant in South Africa and the works of the second PV plant will start within summer 2015, for a total amount of 170m. The revenues of this project are concentrated this year (we estimated around 94m in 2015, 67.8m in 2016, 8.1m in 2017), while we expect that the Company would be able to sign other contracts in South Africa to be started from late 2016 thereafter. Along with the project in Eritrea (Eritrea 1 and Eritrea 2 for 8m), we included in our estimates another project in Eritrea announced in February: the construction of 73 innovative PV systems with energy storage through batteries, for a value of 7m and execution in the period 2015-2016. In the EPC activity, Enertronica, with an important assignment in South Africa already in place and its know-how and reputation, has the competitive advantage to exploit further the substantial pipeline of EPC projects in Africa. In addition, the management confirms its interest also in South America. Regarding the other business units: - PV Components: in the period 2015-16, Enertronica will complete the order from the Italian Army and for 2017 we assume a new order for 4.4m. For the mounting systems, in 2015, the Company will build a production facility in South Africa, in order to obtain substantial savings on transport costs and increase the competitive advantage in that area. - Energy Retail: according to the management, in the first months of the year, Enertronica recorded already a substantial sales growth in the energy retail business. As a consequence, in the period 2015-17, we assume a growing trend as a result of the existing backlog and the development of new trade agreements. The Company confirmed the strategic importance of the ESCO and Energy Saving business, as it allows a more stable and predictable turnover for the Group and generates cross-selling synergies with the other units. Moreover, the management aims to focus more on the division also through the NewCo Smart Utility SpA (95%): the subsidiary will offer energy services to retail or small businesses through the sale or transfer on loan for use of small photovoltaic systems. Following the assumption at the top line, we expect in 2015 an EBITDA margin at around 9%, thanks also to start-up costs of SA Project partly already incurred in 2014, without relevant revenues. 3
In 2016-17, we expect a decrease in profitability as effect of the conclusion of the SA Project. In addition, we forecast an increasing weight at top line of revenues from the Energy Retail business, characterized by a lower profitability. The tax rate is estimated below 30% as effect of the favorable taxation of the SA Project (tax rate in SA at 28%). Moreover, in 2015, the Company would benefit of a credit on deferred tax of around 0.3m. We also extend our model to incorporate 2017 figures, when we estimate revenues at 80.7m (-23%), an EBITDA margin at 6% and a net profit at 3.3m. Enertronica Estimates Revision euro m 2015E New 2015E Old change % 2016E New 2016E Old change % 2017E Revenues 124.8 92.3 35% 104.9 141.3-26% 80.7 EBITDA 11.1 8.7 27% 8.2 11.4-28% 4.9 EBITDA Margin 9% 54% 8% 9% 6% EBIT 10.7 8.3 29% 7.9 11.1-29% 4.7 EBIT Margin 9% 54% 8% 9% 6% EBT 10.1 7.8 30% 7.4 10.6-30% 4.6 EBT Margin 8% 54% 7% 8% 6% Net Income (Loss) 7.5 5.6 34% 5.2 7.7-32% 3.3 Net Debt/(Cash) 6.6 3.3 99% 4.4 1.7-61% -2.0 NFP/Ebitda 4.6 4.7 4.9 4.5 nm 4
Consolidated Projections Enertronica Consolidated Profit & Loss (2015E-17E) euro m 2015E 2016E 2017E EPC 100.3 72.2 41.9 % on Revenues 84% 69% 96% PV Components 4.1 4.0 4.4 % on Revenues 7% 4% 9% Energy Retail 20.5 24.7 34.4 % on Revenues 56% 67% 47% Revenues 124.4 104.9 40.7 YoY% nm -16% -23% EBITDA SGR 0.1 0.1 0.1 EPC Costs -72.2-51.3-24.9 PV Components Costs -0.7-0.7-0.4 Energy Costs -20.1-27.7-33.0 Tot. Material Costs -93.0-79.7-62.7 Other Operating Costs -19.4-15.7-12.1 Labour Costs -1.3-1.3-1.1 EBITDA 11.1 4.2 4.9 EBITDA Margin 9% 8% 6% Amortization and depreciation -0.3-0.3-0.2 EBIT 10.7 7.9 4.7 EBIT Margin 9% 8% 6% Interest -0.6-0.5-0.1 EBT 10.1 7.4 4.6 EBT Margin 8% 7% 6% Income tax -2.6-2.2-1.3 Net Income (Loss) 7.5 5.2 3.3 Net Income (Loss) Third parties (49% SA) 3.3 1.4 1.1 5
Enertronica Consolidated Balance Sheet (2015E-17E) euro m 2015E 2016E 2017E Receivables 22.4 18.2 12.9 Inventory 0.2 0.2 0.2 Payables -12.7-10.5-8.2 Working Capital 9.9 7.9 5.0 Other assets 1.8 1.8 1.8 Other liabilities -1.1-1.2-1.3 Other assets and liabilities, net 0.7 0.5 0.4 Intangible assets 0.5 0.5 0.6 Fixed assets 3.5 3.4 3.4 Financial investments 0.7 0.7 0.7 Non-current assets 4.7 4.6 4.6 Leaving indemnities -0.1-0.2-0.3 Provisions -0.1-0.2-0.3 Invested capital 15.1 12.8 9.7 Other financial assets 0.1 0.1 0.1 (Debt)/Cash 6.6 4.4-2.0 Shareholder's financing 0.1 0.1 0.1 Equity 8.3 8.2 11.5 Sources 15.1 12.8 9.7 We recall that the non-current assets include a restricted fund from customers for the SA Project ( 8.1m at the end of 2015). This amount will be held for 24 months after work completion as cash collateral, being a guarantee of the performance and advance payment bonds undersigned for the project. Enertronica Consolidated Cash Flow (2015E-17E) euro m 2015E 2016E 2017E EBIT 10.7 7.9 4.7 Amortization and Depreciation 0.3 0.3 0.2 Leaving indemnities, net 0.1 0.1 0.1 Current taxes -2.6-2.2-1.3 Operating cash flow 8.5 6.1 3.7 (Capex)/Disposal -0.3-0.2-0.2 Δ working capital -6.4 2.0 3.0 Δ other assets 0.0 0.0 0.0 Δ other liabilities 0.1 0.1 0.1 Free cash flow 1.9 8.0 6.5 Interest -0.6-0.5-0.1 Net cash flow 1.3 7.5 6.4 Dividends to SA Minority 0.0-5.3 0.0 Change in Net financial position 1.3 2.2 6.4 Net financial position (Beginning) 7.9 6.6 4.4 Net financial position (Ending) 6.6 4.4-2.0 Change in Net financial position 1.3 2.2 6.4 6
Valuation Following our estimates revision, we updated our valuation of both the DCF of SA Project and the DCF for the ongoing operations (EPC Italy, PV Components and Energy Retail). Net of the FY14 debt and of the minority of Enertronica SA Pty Ltd, our analysis yields a value of 3.8 per share, with a 10% upside potential. Given the challenging scenario in which Enertronica pursues its growth, we confirm our NEUTRAL recommendation on the stock. Enertronica Valuation Sum of the Parts euro m EV - EPC SA Project 10.9 EV - Other 15.3 EV - Sum of the parts 26.2 Net Debt FY14-7.8 Minority interest -5.3 Equity value 13.1 Shares outstanding 3,459,906 Target price ( ) 3.8 7
Peer Group Performances Stock Currency Price Mkt Cap (m) 1M 3M 6M YTD 1Y 2Y Enertronica Euro 3.44 12 4.6% 1.2% 25.1% -9.2% 1.1% 43.9% TerniEnergia Euro 1.74 83-6.2% -3.5% 15.6% 22.5% -19.6% -14.1% Kinexia Euro 1.14 72-10.5% -14.4% 13.3% 33.6% -51.2% -2.8% Phoenix Solar Euro 3.60 28 0.6% 93.3% 116.7% 132.0% 28.5% 148.3% Martifer Euro 0.32 29 11.9% -19.6% 52.4% 71.1% -51.7% -50.0% First Solar USD 51.12 5,537-8.2% -15.7% 9.0% 14.6% -18.0% 14.3% SunEdison USD 30.16 8,030 21.5% 33.2% 43.8% 54.6% 56.6% 255.7% Mean 1.9% 10.6% 39.4% 45.6% -7.8% 56.5% Source: Bloomberg 05.06.2015 Peer Group Market Multiples Comparables EV/REVENUES EV/EBITDA EV/EBIT P/E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E Enertronica 0.20x 0.20x 2.40x 3.20x 2.40x 3.30x 1.70x 2.40x TerniEnergia 0.55x 0.45x 8.41x 6.91x 12.09x 8.79x 9.68x 16.45x Kinexia 1.68x 1.53x 5.38x 4.75x 14.68x 9.79x 9.34x 20.03x Phoenix Solar 0.42x 0.38x 18.83x 14.12x nm 19.42x neg neg Martifer na na na na na na na na First Solar 1.05x 0.88x 7.51x 5.29x 17.31x 8.50x 23.24x 6.97x SunEdison nm nm nm nm neg neg neg neg Mean 0.78x 0.69x 8.51x 6.85x 11.62x 9.96x 10.99x 11.46x Median 0.55x 0.45x 7.51x 5.29x 13.38x 8.79x 9.51x 11.71x Source: S&P Capital IQ 05.06.2015 Note: Enertronica implied multiples calculated on consolidated data (SA Project and ongoing businesses). Please refer to important disclosures at the end of this report. 8
DISCLAIMER (for more details go to www.envent.eu under Disclaimer ) This publication has been prepared by Luigi Tardella, Head of Research Division, and Serena Polini, Research Analyst, on behalf of the Research & Analysis Division of EnVent S.p.A. ( EnVent ). This publication does not represent to be, nor can it be construed as being, an offer or solicitation to buy, subscribe or sell financial products or instruments, or to execute any operation whatsoever concerning such products or instruments. EnVent does not guarantee any specific result as regards the information contained in the present publication, and accepts no responsibility or liability for the outcome of the transactions recommended therein or for the results produced by such transactions. Each and every investment/divestiture decision is the sole responsibility of the party receiving the advice and recommendations, who is free to decide whether or not to implement them. Therefore, EnVent and/or the author (s) of the present publication cannot in any way be held liable for any losses, damage or lower earnings that the party using the publication might suffer following execution of transactions on the basis of the information and/or recommendations contained therein. The purpose of this publication is merely to provide information that is up to date and as accurate as possible. The information and each possible estimate and/or opinion and/or recommendation contained in this publication is based on sources believed to be reliable. Although EnVent makes every reasonable endeavour to obtain information from sources that it deems to be reliable, it accepts no responsibility or liability as to the completeness, accuracy or exactitude of such information and sources. Most important sources of information used for the preparation of this publication are the documentation published by the Company (annual and interim financial statements, press releases, company presentations, IPO prospectus), the information provided by business and credit information providers (as Bloomberg, S&P Capital IQ, AIDA) and industry reports. The estimates, opinions, and recommendations expressed in this publication may be subject to change without notice, on the basis of new and/or further available information. EnVent intends to provide continuous coverage of the Company and financial instrument forming the subject of the present publication, with a semi-annual frequency and, in any case, with a frequency consistent with the timing of the Company s periodical financial reporting and of any exceptional event occurring in its sphere of activity. A draft copy of this publication may be sent to the subject Company for its information and review (without target price and/or recommendation), for the purpose of correcting any inadvertent material inaccuracies. This publication, nor any copy of it, cannot be brought, transmitted or distributed in the United States of America, Canada, Japan or Australia. Any failure to comply with these restrictions may constitute a violation of the securities laws provided by the United States of America, Canada, Japan or Australia. EnVent is distributing this publication as from the date indicated on the front page of this publication. ANALYST REPRESENTATION For each company mentioned in this publication, all of the views expressed in this publication accurately reflect the financial analysts personal views about any or all of the subject company (companies) or securities. Analysts' remuneration was not, is not or will be not related, either directly or indirectly, to specific proprietary investment transactions or to market operations in which EnVent has played a role (as Nomad, for example) or to the specific recommendation or view in this publication. EnVent has adopted internal procedures and an internal code of conduct aimed to ensure the independence of its financial analysts. EnVent, within the Research & Analysis Division, may collaborate with external professionals. It may, directly or indirectly, have a potential conflict of interest with the Company and, for that reason, EnVent adopts organizational and procedural 9
measures for the prevention and management of conflicts of interest (for more details go to www.envent.eu under Disclaimer and Procedures for prevention of conflicts of interest ). CONFLICTS OF INTEREST In order to disclose its possible conflicts of interest, EnVent states that it acts or has acted in the past 12 months as Nominated Adviser ( Nomad ) to the subject Company on the AIM Italia-Mercato Alternativo del Capitale, a Multilateral Trading Facility regulated by Borsa Italiana (for more details go to www.envent.eu under Disclaimer and Potential conflicts of interest ). CONFIDENTIALITY Neither this publication nor any portions thereof (including, without limitation, any conclusion as to values or any individual associated with this publication or the professional associations or organizations with which they are affiliated) shall be reproduced to third parties by any means without the prior written consent and approval from EnVent. VALUATION METHODOLOGIES EnVent Research & Analysis Division calculates range of values and fair values for the companies under coverage using professional valuation methodologies, such as the discounted cash flows method (DCF), dividend discount model (DDM) and multiple-based models (e.g. EV/Sales, EV/Ebitda, EV/Ebit, P/E, P/BV). Alternative valuation methodologies may be used, according to circumstances or judgement of non-adequacy of most used methods. The target price could be also influenced by market conditions or events and corporate or share peculiarities. STOCK RATINGS The OUTPERFORM, NEUTRAL, AND UNDERPERFORM recommendations are based on the expectations within 12-month period of date of initial rating (shown in the chart on the front page of this publication). Rating rationale: OUTPERFORM: stocks are expected to have a total return of at least 10% in the short term; NEUTRAL: stocks are expected to have a performance consistent with market or industry trend and appear less attractive than Outperform rated stocks; UNDERPERFORM: stocks are among the least attractive in a peer group; NOT RATED: No rating or target price assigned. The stock price indicated is the reference price on the day indicated as Date of Price in the table on the front page of this publication. DETAILS ON STOCK RECOMMENDATION Stock name Enertronica Current recommendation NEUTRAL Previous recommendation NEUTRAL Current Target Price ( ) 3.8 Previous Target Price ( ) 3.2 Current Share Price ( ) 3.4 Previous Share Price ( ) 2.8 Date of Publication 05/06/2015 Date of Previous Publication 17/10/2014 This disclaimer is constantly updated on EnVent s website at www.envent.eu under Disclaimer. Copyright 2015 by EnVent S.p.A. - All rights reserved. 10