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MYTILINEOS Energy & Metals | More than just a deal, more than 10% growth; top pick

Stellar delivery, bulletproof growth, and more catalysts ahead… – Over the past two years Mytilineos has reported impressive results, leveraging synergies arising from the vertically integrated model. Following outstanding delivery to the ambitious FY’23 EBITDA target of €1bn (+23% yoy), we still see ample room for growth, now estimating FY’24 EBITDA of €1.14bn (+13% yoy) and a 3-year EBITDA CAGR of 10%, driven by a step-up in Renewables and solid growth Metals. Moreover, we view the value-accretive deal with PPC as the first catalyst to drive the stock higher (considering the -3% YTD performance) to be followed by the Q1’24 results on 25th April (we expect 9% growth in Q1’24 EBITDA to €246m) and the AGM on 4th June, when mgmt will provide guidance that will likely point to another record year.

Why the deal with PPC is not “just another deal”… – Mytilineos signed a cooperation framework agreement to develop and subsequently sell to PPC a 2GW solar portfolio in Italy, Romania, Bulgaria, and Croatia over the next 3 years for €2bn. With an implied valuation of €1mn/MW, we argue that this is a value-accretive deal for Mytilineos, as it secures high returns on the under-consideration projects (>30%), provides improved visibility on the cash flow generation capacity of M Renewables until 2027 and, most importantly, potentially paves the way for more similar deals, considering Mytil’s 11.8GW portfolio, which could extend cash flow visibility to 2030.

… how in-house electricity sourcing changed the way we look at Metals… – We anticipate Metals to emerge as a pillar of growth alongside RES, following the shift to in-house electricity sourcing in 2024. From a top line perspective, demand remains strong with Mytil having hedged aluminum prices until Q1’25 and benefiting from the rebounding premia. On the cost side, the deal with Imerys provides higher operating leverage, while the energy cost profile has improved, considering Protergia’s efficient energy management through PPAs with 3rd parties and the increased frequency of zero-level prices. We thus expect a rerating of this segment’s EBITDA to >€300m from 2025 onwards.

… and what the integrated electricity business brings to the table… – We anticipate another year of strong performance for the integrated energy segment, penciling in a c50% yoy boost to generation output, reflecting higher utilization of the new CCGT and easy comps due to maintenance. Meanwhile electricity supply benefits from the termination of the regulatory interventions and a higher mkt share (c20%). Lastly, we naturally expect a decline in natural gas supply on low-margin capacity expansion, but this will be more than offset by robust growth in other segments.

Raising PT, reiterating as top pick – Reflecting the impact of the PPC deal and the shifting dynamics across the segments, we have raised our 2024-26e EBITDA 4-6%, now envisaging 13% growth in FY’24 and 9% in FY’25. We therefore raise our PT to €48.4 reiterating Mytil as one our top picks in Greece. Our PT places the stock at 7.4x 1yr fwd EV/EBITDA, namely small premium vs the blended peer group, which is justified in our view by the Group’s superior growth profile and the rising tilt to segments that justify higher multiples (RES 35% of EBITDA in 2026e).