Company Reports

While wholesale power prices stabilized, government bonds’ yields fell on weak economic indicators and lower inflation in the US and Europe. Second-quarter results were boosted by very favorable hydro conditions that led to some guidance upgrades. This goldilocks scenario bolstered a rally in European utilities, enabling them to massively outperform the market and recover much of their earlier underperformance.

We confirm our EUR 39.85 fair value estimate aligned with the takeover bid of Brookfield after no-moat Neoen released first-half results affected by lower power prices and confirmed its 2024 and 2025 guidance. Shares are driven by risk-arbitrage, so the current discount to the takeover price is driven by the time to completion of the offer expected in the first quarter of 2025.

No-moat Neoen's main shareholders, together holding 53.3% of the shares, have agreed to sell them at EUR 39.85 per share to Brookfield Asset Management. Neoen's board has unanimously accepted the offer. Upon completion of the block acquisition, Brookfield will file an all-cash tender offer. The transaction is subject to regulatory approvals, which are expected to be obtained in the fourth quarter; clearing the tender offer that would occur in first-quarter 2025. We see the offer as attractive and raise our fair value estimate to EUR 39.85 from EUR 31.50, in line with it.

Listed since 2018, Neoen is a French renewables developer. The historic shareholder is Impala S.A.S., which holds 42% of the capital. This is the holding of French businessperson Jacques Veyrat. On May 30, 2024, Impala, Fonds Strategique de Participations, and Cartusia investment vehicle owner and Neoen CEO Xavier Barbaro, together holding 53.3% of the shares, agreed to sell them at EUR 39.85 per share to Brookfield Asset Management, a Canadian investment firm investing in renewables. Upon completion of the block's acquisition, Brookfield will file an all-cash tender offer for the remaining shares and convertible bonds.

On April 1, The Australian Financial Review reported that no-moat Neoen hired Bank of America to sell 30% of its Australian business with a price tag of $1.6 billion. This spurred an 8.5% rally in the shares between April 2 and April 5. The $1.6 billion that was reported implies a whopping valuation of EUR 2.4 million per megawatt of installed capacity versus EUR 1.1 million/MW implied in our fair value estimate. All in all, the reported price implies a gross valuation premium (before any taxes on capital gains) of EUR 2.8 per share or 9% of our fair value estimate. We confirm our fair value estimate of EUR 31.50 for Neoen. Due to its young asset base and suitability for a takeover, stemming from its shareholder structure, it's the least undervalued pure renewables developer we cover.

Listed since 2018, Neoen is a French renewables developer. The historic shareholder is Impala S.A.S., which holds 42% of the capital. This is the holding of French businessperson Jacques Veyrat. As he might eventually sell the stake, Neoen is suitable for a takeover, which fuels a speculative premium.

European utilities have reversed their outperformance in the fourth quarter of 2023 because of a fall in wholesale power prices in the wake of gas prices after a very mild winter, and a pickup in interest rates due to inflation receding more slowly than expected. The former led to some of the companies, most exposed to power prices, cutting their guidance for 2024.

We confirm our EUR 26.50 fair value estimate after no-moat Neoen released its 2023 results and set 2024 EBITDA guidance, which is in line with company-compiled consensus and our expectations. Shares are undervalued, while only 20% of capacity is exposed to merchant power prices.

Listed since 2018, Neoen is a French renewables developer. The historic shareholder is Impala S.A.S., which still holds 42% of the capital.

European utilities are up by 14% year to date, slightly underperforming the broader European markets. Since the end of September, the sector strongly outperformed thanks to the rally in government bonds and solid third-quarter results that drove multiple guidance upgrades although growth slowed down from the second quarter due to higher comps. All in all, companies that are the most exposed to commodity prices are set to exceed their 2022 record profits in 2023. Meanwhile, firms with big retail businesses that were hit by a margin squeeze because of the energy crisis in 2022 will post a significant rebound in earnings.

Listed since 2018, Neoen is a French renewables developer. The historic shareholder is Impala S.A.S., which still holds 42% of the capital.

We confirm our EUR 26.5 fair value estimate after no-moat Neoen released its nine-month turnover and confirmed its 2023 EBITDA guidance. Shares appear fairly valued.

We initiate the coverage of Neoen with a no-moat rating and a fair value estimate of EUR 26.5, implying a 2023 EV/EBITDA of 12.6. We view the shares as fairly valued and see more upside in peer, EDPR, which has a better track record in terms of returns on invested capital.

Listed since 2018, Neoen is a French renewables developer. The historic shareholder is Impala S.A.S., which still holds 42% of the capital.