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Cenergy Holdings | ElectriGas growth unleashed

Leading cable/steel pipes manufacturer and electrification/gas play; market in secular growth – Cenergy is one of the leading cables/steel pipes manufacturers globally, with its activities focused on the production of high voltage cables (No 4 international player) and steel pipes. The group is diversified geographically (Greece just c30% of sales) while serving most subsector end markets. The main value driver of the group is the cables division, which accounted for c70%/80% of 2022 revenues and EBITDA respectively, but with pipes set to increase in the mix on rising demand for gas projects further underpinned by market rationalization. Cenergy is effectively both an electrification and gas/clean energy play primed to benefit from the secular growth in these segments in view of the upgrade of transmission grids, the proliferation of offshore parks and the dynamic growth in the gas fuel sector in the context of the energy transition.

Offshore wind market growth + strong pricing = backlog expansion and 2-digit revenue growth – The group has notable expertise in inter-array cables while also having quite a competitive product suite in HVAC/HVDC cables. The offshore wind cables market is headed for c11% CAGR in the next 7 years, amidst strong demand and robust pricing, paving the way for c16% growth for the group’s cable project division on our estimates. Our overall forecasts for the group envisage >6% revenue CAGR over 2023-26e, mainly driven by project revenues (c10% CAGR, incl. steel pipes). This is well underpinned by Cenergy’s current total backlog, which exceeds €2bn corresponding to c3x annual project sales, thereby providing quite high revenue visibility in the medium term.

… and a c18% EBITDA CAGR profile in 2023e-26e – Cenergy has seen its adj. EBITDA get rebased to €137m in 2022 from just €61m in 2018, delivering c22% CAGR over the period and >3pps margin expansion to c9.6%, a level comparable to that of Prysmian. Looking ahead, we forecast c18% EBITDA CAGR over 2023-26e reflecting backlog execution and order intake. This growth profile is actually one of the most attractive in the cables space and outstrips the high-single digit EBITDA growth offered by Prysmian and Nexans.

… with rising returns – Previously considered low-margin businesses, cable/pipes companies have seen their ROICs improve in recent years in light of solid order intake and secular growth as a result of the green transition and electrification. Over 2017-2022 Cenergy achieved a >30% pre-tax return on its €300m investment during the period, thus expanding post-tax ROIC to c14%, a best-in-class level among its peers. Looking ahead, our model envisages ROICs expanding by >3pps through to 2026, which is quite in sync with recent commentary by Nexans (indicating a 5pps increase in ROIC) and NKT (ROIC c9pps higher than in 2021).

Valuation – Despite the impressive rally in the last 2 years (shares have more than doubled), Cenergy still trades at c7.5x 1yr fwd EV/EBITDA, still a discount vs the blended peer group median (c8.3x), despite enjoying a higher growth profile and offering superior returns. Our DCF-based valuation, predicated on a 9.5% WACC, generates a PT of €7.2 per share, effectively valuing the group at c9x 1yr fwd EV/EBITDA, namely a bit above the current median 2023 valuation of the blended peer group.