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MYTILINEOS Energy & Metals | Renewable Sources of Growth

FY’2022 was just the beginning… – In the light of the stellar FY’22 performance, with EBITDA jumping a whopping 130% yoy at €823m, Mytilineos’s shares have rallied 62% ytd more than doubling vs the 2022 lows, outperforming both Greek non-financials and the broad peer group. We argue that 2022 set a new basis for earnings and we suggest that growth will stay strong in 2023 (EBITDA +17% yoy) and 2024 (+13%) mainly driven by the Energy segment, which has taken center stage among the group’s operations. Our 2023e is just a tad below company guidance of €1bn, as we prefer to err on the conservative side, with risk clearly lying on the upside.

…as Renewables drive growth… – Holding a growing global portfolio of c.12GW in various stages of development (vs 6.4GW in 2021), the RES subsegment is poised to become the most profitable activity, with our estimates pointing to 2025e EBITDA of €330m (vs €160m in 2022), c27% in the group mix. The recent acquisition in Canada, a landmark portfolio with capacity of 1.4GWdc, can contribute another c€90-100m EBITDA post 2027, thus bringing the total RES contribution in the mix to c40%.

… Energy fuels profitability… – In addition to RES, we assign significant value to the other activities of the Energy segment, with the most prominent being electricity generation, as the new 826MW CCGT unit (with an efficiency of 63%) will double output to c.10TWh by 2025. We also expect higher profitability from: 1) electricity supply, thanks to an increasing mkt share, 2) healthy profit generation from natural gas supply (>€125mn) on account of increased volumes, and 3) growth of the conventional EPC activity in parallel with backlog (€1.3bn).

… and Metals shine with synergies – Metals segment is well-positioned to continue delivering >€250m EBITDA, in our view. From a pricing perspective, Mytilineos has hedged aluminum prices for 2023 at >$2,500/ton and is selectively implementing hedges for the future. On the cost side, the integrated aluminum production line and synergies relating to natural gas sourcing contribute to cost efficiency, which will be further underpinned by the smelter’s sourcing of electricity from the Group’s own supplier “Protergia” starting in 2024. Given that part of the electricity sourced will be through Green PPAs, we envisage that the net energy cost increase will be trivial, on the back of decreased CO2 emissions costs. Furthermore, we recognize further optionality for the segment following the recent inclusion of aluminum in the EU’s CRMA list and the potential of expanding Metals’ production to gallium.

Valuation: raising PT, reiterating as top pick – Having the above in mind, we have raised our 2023-24e EBITDA 6-7%, corresponding to c17%/13% annual growth. In achieving this, we estimate the group will require c€2.2bn total capex until 2025, but with Net Debt/EBITDA still ≤1.5x, thanks to strong FCF generation. The latter will underpin healthy cash returns, translating to c4-5% yield. Recalibrating our valuation to incorporate the accretive value of the Canada acquisition, which we estimate at €2.5/share, we raise our PT to €40.30, placing the stock at c.7x 1-year fwd EV/EBITDA, by no means aggressive given the merits of the investment thesis. We thus reiterate the stock as a Top pick, envisaging plenty of scope for re-rating.