Three values of the Spanish renewable sector with potential
The generation of renewable energies will reinforce its growth to the detriment of other energies. Solar, photovoltaic, offshore wind, onshore wind, green hydrogen, are the new energies that are already implemented and will only gain ground. They have also managed to lower costs and attract the interest of the regulator, which will facilitate the development of all this business.
By way of synthesis, To achieve the United Nations objectives established against Climate Change, the new electricity generation mix should have up to 90-100% of renewable origin. Reaching this level of penetration will mean installing between 145-201 GW of renewable electricity generation (wind and solar photovoltaic) by 2050, as well as sufficient backup / storage capacity to guarantee security of supply.
With proper management, all new generation capacity built in Spain from now on should be renewable. Until 2030, the installation of between 30 and 39 GW of renewable capacity would be required, which would be equivalent to the installation of between 2 and 2.6 GW per year of renewable generation capacity.
As investors, if we want to participate in this global investment in renewable energy, if we want to allocate part of our investment portfolio to the green sector, Which assets / companies of those traded in the Spanish market currently have the greatest potential? In short, we are looking for companies that not only generate and commercialize green energy, but also participate in the construction of plants, as well as participate in the energy storage business. Too We will highlight companies that manufacture components, such as solar cells and panels and also participate in the business of maintenance and management of facilities. Not forgetting that in the case of a sector that will need heavy investments to achieve the ambitious objectives of generating and putting into operation plants, we look for companies with good management of their solvency, so that their present debt does not strangle their investment capacity and future growth.
potential of Spanish renewable energies on the stock market
Audax’s activities are focused on the supply of electricity and gas, as well as the production of 100% renewable energy. In the commercialization activity, it is present in Spain, Portugal, Italy, Germany, Poland and the Netherlands. The commitment to its commercialization business with a very palpable improvement in margins was very positive, mainly thanks to the supply of energy through PPA, which favors taking advantage of the advantages of vertical integration. Looking ahead to 2021 Audax wants to reinforce its leadership as the first independent marketer in the SME segment in Spain, double its profitability, covering 2/3 of the energy supplied through long-term PPA contracts with its own generation and third parties, following an asset rotation strategy and replicating the success obtained in Spain in the international markets in which it already operates.
In a valuation and comparison by stock market multiples over the estimate of results for 2021, the market discounts a PER of 31.9v for Audax, lower than the average of its competitors, but with a narrow margin; However, if we adjust the PER for the expected growth in its EPS, the PEG ratio is clearly undervalued, 0.22v and shows the strong potential of the action. Also discount by multiple on sales (PSV 0.77v) and robust solvency (EFN / EBITDA 2.6v compared to a sector average of 3.68v).
It is a fully consolidated energy group with a maturity that, far from stagnating its business, maintains it with very good growth rates. Established in markets in the five main geographic areas, Europe, Latam, North America, Asia, South Africa and Australia, and in the onshore wind, offshore, hydrogen, solar and combined cycle businesses. In this regard, Iberdrola overtakes Endesa, which remains more focused on the domestic market. What’s more, This large Spanish energy group is focusing on green hydrogen as its new growth opportunity with consequent support for the creation of new electrolyzer manufacturers. It has also been proposed to accompany the growth of its profit with the growth of its dividend with a floor of € 0.40 / share during the next two years and € 0.44 / share between 2023 and 2025. Financial strength, solidity of its ratings, good solvency levels with NFD / EBITDA estimated for 2021 at 3.7v and Iberdrola also has a strong liquidity position.
In a valuation by multiples over estimated results for 2021, The market discounts a PER of 18.5v for Iberdrola (vs 38v on average among its competitors), moderation also in the PCF ratio (7.5v) and EV / EBITDA controlled, at 9.8v and the market pays 1.78v its value in books, compared to a multiple of the average book value for its peers greater than 4v. The yield on dividend-Yield is not negligible, 3.6%.
Embarked on a Transformation project towards the clean energy business, it highlights that the refining area is already integrating renewable energies, for example, through the production of hydrogen, and will increase, but traditional businesses will gradually lose weight. It is very well positioned at the natural gas level and in a sectorial mode it is very important, there are other competitors who do not bet so much on this energy. A more cost-efficient business that helps you transition thanks to its short-term potential for substitution to natural gas from coal. The path is the right one and Repsol is ready to carry it out successfully. The group also does not rule out listing its renewable energy subsidiary or, failing that, seeking a partner in the market given the heavy investments that this business needs. It is a solvent group, with investment and growth capacity, with a well planned Strategic Plan, and a forecast of strong growth in revenues and EBITDA.
In a valuation by multiples, Repsol is the company in the renewable energy sector with the highest fundamental discount. The market pays 12.16v PER, with strong EPS growth forecast for 2021, which places the PEG ratio at levels of clear undervaluation (0.05v). Also undervalued by multiple over sales (0.34v) compared to its competitors, also by PC and EV / EBITDA. The market pays only 0.59v for its book value, compared to an average of 4.16v for its peers. It also has the highest yield on dividend-Yield in the sector, 6.76%.