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Terna Energy | First thoughts: Relatively weak quarter on unfavourable wind conditions

Unchanged installed capacity targets – Installed capacity remained at 1,032 MW at the end of Q2, excluding the 200 MW park in the US. Looking ahead, installed capacity targets remain unchanged; the group expects to have installed a total of 653 MW in the US by year-end (200 MW acquisition & 158 MW under construction), bringing total installed capacity to just under 1.4 GW, in-line with Eurobank est. Another c. 220 MW is under construction in Greece, to be added in 2020/2021.

Relatively weak core Energy activity – On an operational level, despite increased installed capacity yoy (1,032 MW vs. 986 MW in Q2 2018) core Energy performance in Q2 was relatively weak on the back of unfavourable wind conditions. Wind load factors stood 180 bps lower yoy in Q3, at 27.5% vs. 29.3% last year. Performance was broadly in-line with Greek wind operators and 20 bps lower than our estimates since we expected Terna Energy to have outperformed its competitors slightly. As a result, core Energy Sales stood at €46.8mn, -3.7% yoy (8.8% lower than Eurobank est.) while Energy EBITDA remained flattish yoy at €34.1mn (16.6% lower than Eurobank est.).

Lower contribution by other activities – Revenue from Construction, Waste Management, Electricity Trading and E-Ticketing reached €12.1mn from €18.4mn in 2018 mainly due to lower contribution by the E-ticketing activity last year’s kick-starting had boosted revenue). In terms of EBITDA, as is usually the case, contribution of the aforementioned activities was marginal (€0.6mn vs. €2.6mn last year).

Group Net Debt (including TE) marginally higher, but expect significant increase by year-end ahead of new capacity installations – At a group level, Sales stood at €58.9mn in Q2, 12.1% lower yoy (14.4% lower than Eurobank est.) and EBITDA reached €34.7mn, 4.1% lower yoy (21.9% lower than Eurobank est.). Net Profit improved marginally on a year-on-year basis, reaching €7.0mn (vs. Eurobank est. for €15.6mn due to higher than expected financial expenses & effective tax rate). Group Net Debt, including tax-equity investments in the US, increased to €845mn from €784mn at the end of 2018 due to capital investments ahead of new capacity installations. Net Debt was c. 12% lower than our numbers since we factored in more aggressive capex in Q2, which we expect will be realized in H2 2019 instead.

Expect current trends to continue in H2 ’19; shares trade broadly in-line with EU RES generators – Looking ahead, we expect year-to-date trends to continue in H2 2019, with wind performance remaining on the weak side, but being offset by increased capacity yoy. We note than on our numbers, Terna Energy would trade at a 9.5x 2020e target EV/EBITDA multiple, broadly in-line with European RES generators, which is justified in our view given the group’s increasing capacity outside Greece and solid track record in terms of carrying out its capacity expansion program.