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MYTILINEOS | EmPOWERing growth through Green Energy Transition

Share price out of sync with fundamentals; Top pick – Mytilineos’ shares have retreated c25% from the recent peak and are down 3% in the last year, with the stock price moving out of sync with the fundamentals (2023e net profit raised +29% by EE over the same period). Notwithstanding the volatile external environment, the Group has posted impressive H1 results (EBITDA +89% yoy), triggering a new round of positive revisions, with our 2022-24e EBITDA lifted by c9-17% with this report. Management’s timely focus on energy transition positions the group well to sustain the solid profit momentum, with our estimates envisaging 3-year EBITDA CAGR of 32%. We reckon this is quite a compelling proposition taking into account the muted valuation (4.5x 1yr EV/EBITDA) and we thus reiterate the stock as a top pick.

Emerging as a “Green” player – As the Group tilts its focus towards contributing to the global energy transition, we expect “Green EBITDA” to increase from €174mn in 2022e to c€600mn by 2025e, led primarily by its expanded Global RES portfolio and the “Greenification” of the aluminum production. On our estimates, Green EBITDA will represent over 70% in the 2025e group mix compared to just 16% in H1 2022.

Metallurgy: Hedges underpinning 2022-23e – We argue that the recent drop in LME prices should not cause investor trepidation as Mytilineos has hedged aluminium selling prices for 2022-23 at quite healthy levels. We also argue that further downside for LME is limited, as soaring inflation has driven up the smelter cash cost curve, something likely to lead to supply curtailments. We expect €292mn segment EBITDA in 2022e (+83% yoy) stabilising near the €270mn mark in 2023-24e.

Power & Gas: profitability rebasement on record-level spark spreads – Despite the regulatory amendments in 2022, the P&G segment is well-positioned to navigate the tricky backdrop and looks set to deliver a 46% yoy uplift in EBITDA. The Group’s highly efficient units maintain robust spark spreads (>€60/MWh on our estimates, c2x higher yoy), while the introduction of the new CCGT gas thermal unit (63.5% efficiency) by Q4’22 will double the Group’s production capacity and further boost spark spreads. LNG trading activity has also emerged as a material profit contributor, given the soaring natural gas prices, with 2022e EBITDA from gas supply looking set to surpass the €100mn mark on our numbers (vs €20mn in FY’21).

RSD to lead to long-term “Green” growth – RSD specialises in RES-related projects such as solar power installations and energy storage projects worldwide, with Mytilineos well placed to benefit from the accelerated global energy transition. We anticipate that the RSD segment (6.2GW backlog vs just 3GW in 2021) will be a significant growth lever for the group, ramping up to c€150m of EBITDA post 2023e from €22m in 2021 (23% in the group mix post 2023e from 6% in 2021).

Raising PT to €25.6; reiterating as a top pick – Incorporating our new assumptions for each business unit, we raise our PT (SOTP-based) to €25.6, implying a 1yr fwd EV/EBITDA