the green brothers - cfasi
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0
5
10
15
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25
30
Sto
ck P
rice
(€
)
CLOSING PRICE€25.90
+12.74% change
BUYR E C O M M E N D A T I O N
ERG: a Forward-Thinking Company
1Y TARGET
PRICE
€29.20
A Successful Transformation Story
DIVERSIFIEDSUSTAINABLE
CONSERVATIVE
Programmable
sources
Non-Programmable
sources
Technological
Geographical
Portfolio Diversification confirms Soundness
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
HYDROELECTRIC (12% of Revenues) SOLAR (7% of Revenues)
THERMOELECTRIC (40% of Revenues)WIND (41% of Revenues)
• Programmable Source
• Revenues in FY19: €132mln
• Installed Capacity: 527 MW
• Leading Operator in Italy
• Revenues in FY19: €414mln
• Installed Capacity: 1929 MW
• Cogeneration Combined-cycle
Gas turbine (CCGT) Power Plant
• Revenues in FY19: €418mln
• Installed Capacity: 480 MW
• One of the Five Photovoltaic
Leading Operator
• Revenues in FY19: €71mln
• Installed Capacity: 141 MW
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
A Primary Independent Producer in Europe…
7 countries in Europe
Leadership Positioning
In Italy
Prominent Position
In France and Germany
Sustainable Economy
Operating Efficiency
Power Generation
Sustainable Development is the main
challenge of ERG business
Improve Operation
Efficiency through
O&M
…Aligned with the Transition Process of the Energy System
Greenfield & Co-
Development
Repowering &
Reblading
M&A
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
DECARBONIZATION
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
New Business Models Help Advance the Energy Transition…
DECENTRALIZATION
DIGITALIZATION
The transition towards a clean and carbon-free economy
ERG CORE BUSINESS STRATEGY
Reduction in Carbon Index
-87% from 2008
Energy Industry Trends
DECENTRALIZATION
DIGITALIZATION
DECARBONIZATION
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
New Business Models Help Advance the Energy Transition…
DECENTRALIZATION
DIGITALIZATION
Energy Industry Trends
DECENTRALIZATION
DIGITALIZATION
Geographical distribution of electricity achieving universal access by 2030
ERG around the Europe
DECARBONIZATION
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
New Business Models Help Advance the Energy Transition…
DECENTRALIZATION
DIGITALIZATION
Energy Industry Trends
DECENTRALIZATION
DIGITALIZATION
The widespread use of digital machines
ERG Project One ICT
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
…Accelerating the Industry Convergence
INCENTIVES TO
SUSTAINABILITY
OIL & GAS
PRICES
EUROPEAN
REGULATIONS
ELECTRICITY
PRICEGEOGRAPHICAL
DIVERSIFICATION
Market Drivers
Renewables: an Evolving Niche Industry
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
High Expected Growth
Regulated Framework
Cost Efficiency Improvements
Green Economy
Entry Barriers
CAGR 6.1%
2020-2025 DECARBONIZATION
INCENTIVESRecovery
Fund
M&A OperationsHIGH CAPITAL
REQUIREMENT
Repowering
& RebladingDIGITALIZATION
Regulated Framework
Cost Efficiency Improvements
Entry Barriers
ERG Stands Out from the Competitors
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
11.2%
9.0%7.3%
3.5%
3.5%3.4%
1.7%ERG
Edison
Enel
Alerion
RWE
Falck Renewables
CVA
ITALIAN MARKET SHARE
Hera Acea
Terna
Italgas
Falck Renew
Iren
EDP Renovaveis
ERG
0%
40%
80%
0% 10% 20% 30% 40% 50% 60%
EBIT
DA
Mar
gin
CAPEX to SALES
EUROPEAN POSITIONING
Specialized in the Production Process
Leading Wind Operator
M&A activities
A Business Model Oriented to Sustainable Development…
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
DIVERSIFIED
Stable Revenues
Strong Cash Flow
Generation
CONSERVATIVE
Sound Financial
Structure
SUSTAINABLE
…with a Steady and Well Balanced Portfolio…
STABLE REVENUES
STRONG CASH
FLOW GENERATION
SOUND FINANCIAL
STRUCTURE0
200
400
600
800
1,000
1,200
mln
€
Total Revenues
0
200
400
600
800
1,000
1,200
mln
€
Revenues by Segment
Wind Thermo Hydro Solar
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
Well Diversified
Portfolio
Programmable
sources
Low Revenues
Volatility
Non-Programmable
sourcesGrowth Opportunity
CAGR -0.1%
(€mln)
(€mln)
…a Continuous Discipline to Drive Cost Reduction…
STABLE REVENUES
STRONG CASH
FLOW GENERATION
SOUND FINANCIAL
STRUCTURE
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
Increasing margins...
40%
42%
44%
46%
48%
50%
0
100
200
300
400
500
600
2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E
mln
€
Ebitda Ebitda margin
COST OPTIMIZATION
-400
-200
0
200
400
600
2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E
mln
€
Cash Flow form Operations Change in Working Capital CAPEX D&A FCFO
...Leads the company to
STRONG Cash Flow generation
(€mln) (%)
…and Maintain a Conservative Capital Structure Policy
STABLE REVENUES
STRONG CASH
FLOW GENERATION
SOUND FINANCIAL
STRUCTURE
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
3.62.8 3.1 3.3 3.3 3.2 3.0 2.9 2.8 2.8 2.7
0
2
4
6
2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E
Net debt/EBITDA
With a sustainable footprint...
€1.1bln amount in
GREEN BONDS in FY19-20
0
100
200
300
400
2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E
mln
€
CAPEX
Maintenance &
Installed Capacity
Expansion
HIGH LEVEL
of CAPEX
Our Forecasting Methodology: Disentangling ERG’s Business
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
SPLIT REVENUES
Segments
HYDRO
SOLAR
THERMO
Geographic Area
BOTTOM-UP APPROACHWIND
TOP-DOWN APPROACH
Wind Revenues Determined by Two Main Channels
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
PRODUCTION
Decarbonization
Process
Greenfield
Co-Development
M&A
+563 MW FY21E-26E
+455 MW FY21E-26E
Repowering
&
Reblading
PRICE
-4.08% CAGR FY21E-26E
+0.53% CAGR FY21E-26E
ITALY Loss of Incentives
ABROADBenefits from
Geographical Diversification
€/MWh
0
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500
0
50
100
150
200
2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E
MW
mln
€
Solar
Installed Capacity Revenues
0
200
400
600
0
200
400
600
2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E
MW
mln
€
Thermoelectric
Installed Capacity Revenues
Other Segments also Provide Significant Contribution
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
0
200
400
600
0
200
400
600
2016 2017 2018 2019 2020E2021E2022E2023E2024E2025E2026E
MW
mln
€
Hydroelectric
Installed Capacity Revenues(MW) (MW)
(MW) (€mln)
(€mln) (€mln)
In our opinion is
the sector with the
highest potential growth
in ERG’s portfolio
ERG’s Target Price as Combination of Two Methodologies…
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
€29.20
Multiples
Analysis
1/3
€30.27
2-Stage DCF
2/3
€28.67
EV/EBITDA P/E
10.42 18.8
15.24 45.5
12.27 42.7
10.60 23.8
Equally Weighted Average
12.13 32.70
Target Prices 32.41 28.12
EV/EBITDA32.41
P/E28.12
TARGET PRICE €30.27
…which Underweights the Multiple Analysis
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
2-Stage DCF
Weight: 2/3
Price: €28.67
Multiples
Weight: 1/3
Price: €30.27
Separating Valuation of Organic & Inorganic Growth
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
WACC Kd
Short-Run 4.67% 0.45%
Medium-Run 4.80% 0.95%
Long-Run 5.07% 1.93%
Other Parameters
Risk Free Rate 0.44%
Equity Risk Premium (ERP) 8.5%
Beta 0.7811
Cost of Equity (Ke) 7.08%
Leverage Ratio: D/(D+E) 35.77%
Tax Rate 24%
Growth Rate
1%2-Stage DCF
Weight: 2/3
Price: €28.67
Multiples
Weight: 1/3
Price: €30.27
2-STAGE DCF
PRICE
€28.67
ORGANIC
€27.33
INORGANIC
€1.34
Separating Valuation of Organic & Inorganic Growth
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
First Stage
Second Stage
WACC Kd
Short-Run 4.67% 0.45%
Medium-Run 4.80% 0.95%
Long-Run 5.07% 1.93%
Other Parameters
Risk Free Rate 0.44%
Equity Risk Premium (ERP) 8.5%
Beta 0.7811
Cost of Equity (Ke) 7.08%
Leverage Ratio: D/(D+E) 35.77%
Tax Rate 24%
Growth Rate
1%2-Stage DCF
Weight: 2/3
Price: €28.67
Multiples
Weight: 1/3
Price: €30.27
€m
ln
Inorganic Growth: Exploiting Good Opportunities Abroad
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
0
200
400
600
800
1000
1200
1400
2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
mln
€
Inorganic Organic
The best inorganic growth opportunities:
Germany & France
0.00
0.50
1.00
1.50
2.00
2.50
Germany France U.K. Poland
0.750.98
2.15
1.40
Mea
nT.
V./
Mea
nM
W
OUR FORECAST METHODOLOGY• Transaction Value
• MegaWatt (MW)FROM PAST OPERATION
REVENUES
MEAN AND SOTP-DCF TARGET PRICE: 29.20
CLOSING PRICE
Montecarlo Simulation
±5% PERSISTENT SHOCK
Tornado Analysis
BUY > +10%HOLD ∈ [-10%, +10%]SELL < -10%
Sensitivity Analysis:TARGET PRICE
23.31 25.90 28.49 Working Capital
Tax Rate
Capex
D&A
COGS
Revenues
+5% Shock -5% Shock
Short-Term Sensitivity Analysis – DCF (€)
Gro
wth
Rat
e
WACC
4.07% 4.27% 4.47% 4.67% 4.87% 5.07% 5.27%
0.6% 26.76 26.53 26.31 26.09 25.88 25.66 25.45
0.7% 27.37 27.14 26.92 26.69 26.47 26.25 26.04
0.85% 28.34 28.11 27.88 27.64 27.42 27.19 26.97
1.0% 29.39 29.15 28.90 28.67 28.43 28.20 27.96
1.15% 30.51 30.26 30.01 29.77 29.52 29.28 29.04
1.3% 31.73 31.47 31.21 30.95 30.70 30.45 30.20
1.45% 33.04 32.77 32.50 32.24 31.97 31.71 31.45
Long-Term Sensitivity Analysis – DCF (€)
Gro
wth
Rat
e
WACC
4.47% 4.67% 4.87% 5.07% 5.27% 5.47% 5.67%
0.6% 29.98 28.56 27.27 26.09 25.02 24.04 23.13
0.7% 30.78 29.28 27.92 26.69 25.57 24.54 23.60
0.85% 32.05 30.43 28.97 27.64 26.44 25.34 24.33
1.0% 33.44 31.68 30.09 28.67 27.37 26.19 25.12
1.15% 34.95 33.03 31.31 29.77 28.37 27.11 25.95
1.3% 36.61 34.50 32.63 30.95 29.45 28.08 26.85
1.45% 38.43 36.11 34.06 32.24 30.60 29.13 27.80
Reinforcing our Analysis
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
How to Capture Additional Growth Opportunities?
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
Selling Thermo and Hydro
segment ERG will obtain
Faster Growth in Wind and
Solar Sectors
Higher installed capacity
Higher Revenues
0
1000
2000
3000
4000
0
200
400
600
800
1000
1200
2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
MW
mln
€
Installed Capacity Revenues(MW) (€mln)
Additional
upside
8.29%
POTENTIAL PRICE
€31.62
TARGET PRICE
€29.20
Conservative strategy Aggressive strategy
upside
12.74%
CLOSING PRICE
€25.90
Risk-reward Analysis Shows Moderate Downside
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
5
4
3
2
1
Strategy RisksImpact
3.5
Likelihood
2.5
Financial RisksImpact Likelihood
2 1 4.5
Macro RisksImpact Likelihood
4.5
Regulatory RisksImpact Likelihood
4.5 4
IMPA
CT
5Weather Conditions;
IncentivesCovid-19; Brexit
4 Electricity Prices Concessions
3
2ITC; Credit Defaults;
CommodityLiquidity
1 Interest Rate
1 2 3 4 5
LIKELIHOOD
MITIGATION STRATEGY
• Sensitivity Analysis to assess the effect
of the main regulatory evolutions;
• Maintenance of effective and long-
lasting relations with local stakeholders
Diversification Strategy mitigates Risks
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
WEATHER
CONDITIONS
INCENTIVES &
CONCESSIONS
MITIGATION STRATEGY• Technological & Geographic diversification;
• Use of highly accurate weather forecasting instruments;
• Schedule the downtime of renewable facilities.
DECREASE IN PRICE
OF ELECTRICITYDECREASE IN
ELECTRICITY DEMAND
MITIGATION STRATEGY• Exposed to commodities cfd
Covid-19 Proves Strong Resilience for ERG
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
ERGItaly
Spain
Belgium
Austria
France
Portugal
UK
Germany
-27%
-21%
-17%
-16%
-16%
-15%
-14%
-8%
Covid-19 Impact on Electricity Demand
Coronavirus
heavily
affected global
economy
Energy Industry
NECESSARY MEASURES
Health of its employees
Operational Continuity
Low Impact on ERG
RESILIENCY TO COVID-19
NEGATIVE IMPACT ON PRICE
SHUTDOWN OF WIND FIRM
DELAYS IN CONSTRUCTIONS & AUTHORIZATIONS PROCESS
ERG at the Forefront of the Fight Against Climate Change…
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
0
100
200
300
2015 2016 2017 2018 2019
231
161157
135 145
Gco
2/K
Wh
Carbon Index
Sustainability
REDUCTION in
CARBON INDEX
REPOWERING &
REBLADINGPLASTIC FREE
PROJECT
15t Avoided
CORE BUSINESS ACTIVITY
2,500Kg
Plastic Saved
Sustainability Ratings
CDP MSCI
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
…Engaging People that Contribute to Environmental Protection
Code of EthicsLAWFULNESS
INTEGRITY
HONESTY
EQUALITY
2017
2018
2019
87%
90%
93%
Human Capital
Coverage Ratio
It represents a way to
understand the value of
the Human Capital
H C C
ESSENTIAL FACTOR
FOR SUCCESS
ERG Is Oriented to a Sustainable Business Management…
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
Edoardo GarroneFounder &
Chairperson
A. GarroneDeputy
Chairperson
Luca BettonteChief Executive
Officier
G. MondiniChairperson
M. BelcrediDirector
M. CaverniNon-Executive
Director
B. CominelliNon-Executive
Director
M. CostagutaNon-Executive
Director
P. LanzoniNon-Executive
Director
S. MerloNon-Executive
Director
E. OlivieriNon-Executive
Director
M. PanterliniNon-Executive
Director
…in Full Compliance with Legality, Transparency and Fairness
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
Gender Balance
Age
Professional Carrier
33%
67%
Female
Male
8%
17%
58%
17% 45-49
50-54
55-59
60-67
40%
48%
12%
Entrepreneurial Professional Academic
Age
Professional Carrier
Our ESG Framework Includes Several Factors…
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
GovernanceSocialEnvironmental
• CO2 emissions (gCO2/kWh)
• Energy from clean sources [%]
• Waste recycled [%]
8 Parameters 31 Parameters10 Parameters
0
1500
3000
2015 2016 2017 2018 2019
979
2993 2901 3029 3086
Gco
2/
Kw
h
CO2 Avoided
• Gender mix [%]
• Employee training hours [h/year]
• Employee turnover [%]
• Communities
79.2%
20.8%
Gender Mix
Male
Female
• Board Structure
• Remuneration Policy
• Shareholders Interests
12 of BoD
…Signaling ERG’s Strong Adherence to ESG Criteria
BUSINESS DESCRIPTION INDUSTRY OVERVIEW FINANCIAL ANALYSIS VALUATION RISKS ESG
Score
Strength in the
Environmental
Dimension
Improvements for
Social & Governance
0
5
10
15
20
25
30
gen
-17
apr-
17
lug-
17
ott
-17
gen
-18
apr-
18
lug-
18
ott
-18
gen
-19
apr-
19
lug-
19
ott
-19
gen
-20
apr-
20
lug-
20
ott
-20
gen
-21
apr-
21
lug-
21
ott
-21
gen
-22
Sto
ck P
rice
(€
)
CLOSING PRICE
€25.90
+12.74% change
A Successful Story with Potential Additional Benefits
Target
Price
€29.20
SUSTAINABLE
CONSERVATIVE
DIVERSIFIED
RECOMMENDATION
Potential
Price
€31.62
+8.29% change
Conservative strategy
Aggressive strategy
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