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Mytilineos Energy & Metals | Not your everyday RES play

Delivering on an ambitious target; FY’23e EBITDA to reach €1bn… – Following the record-level profitability growth in FY’22 (+130% yoy), Mytilineos is poised to deliver +19% EBITDA growth in FY23e (results on 25th January), ultimately delivering on the ambitious target set by the CEO in last year’s FY results conference call and affirming that the €1bn mark constitutes a new base for the Group. Looking ahead, we expect the 2-digit growth algorithm established in recent years to continue with FY24-25e growth settling at 12-10%, underpinned by a robust outlook for the Energy segment.

… as the c14GW RES portfolio takes over the driver’s seat … – Renewables are on track to become Mytilineos’ most profitable activity in FY’24, with our estimates pointing to EBITDA of €306m (+28% yoy), as the “Asset Rotation” model extracts full value out of the c14GW portfolio, transforming the Group’s main business against the background of headwinds in the RES industry. This self-funded approach facilitates geographical diversification, offers inflation protection, and promotes accelerated value crystallization for Mytilineos, who has now emerged among the RES leaders adopting this practice. Recent deal data suggest an emerging premium in private compared to public RES valuations, thus indicating significant optionality for Mytilineos upon project disposal.

… and the integrated electricity business hedges its way forward… – The Group’s electricity supply activity has undergone a major transformation following the acquisitions of Watt & Volt and Volterra. Coupled with the undertaking of the electricity supply for the aluminum facility, Mytilineos' supply market share is on track to exceed 20% by FY’25e. Moreover, as the new CCGT gradually reaches its full production potential, the Group’s integrated position will be completely hedged, with the net electricity market exposure approaching zero. The performance of the integrated electricity business will be further enhanced in 2024, following the termination of government regulatory interventions in place until FY’23.

Imerys deal enhances vertical integration in Metals – Aluminum production will remain a key cash-flow contributor, following the new electricity supply contract with Mytilineos own “Protergia”, with its performance underpinned by: 1) hedged aluminum prices for FY’24, 2) healthy local premia, 3) energy savings following the shift to green energy sourcing, and 4) enhanced vertical integration following the acquisition of Imerys. The latter not only makes the group the largest bauxite producer in the EU, but also facilitates the optionality of gallium production.

New PT of €45.2; reiterating as top pick – Inputting higher numbers for Energy, we have lifted our 2024/25e EBITDA by 1%, expecting +12%/10% growth after a stellar +19% growth in 2023e. Incorporating our updated estimates, which reflect double-digit upgrades in the mid and long-term for Energy, as well as a slightly lower risk-free rate in our WACC, we raise our PT to €45.2 (based on SOTP using divisional DCFs). Our PT places the stock at 7.4x 1yr fwd EV/EBITDA, namely at a small discount vs the blended peer group. We reiterate the stock as one of our top picks in Greece and expect it to move higher in the valuation spectrum on rising RES exposure.