Wind And Solar Expansion Will Modernize Energy Grids Amid Fiscal And Climate Risks

Key Takeaways

• Strategic focus on renewables, grid infrastructure, and digital upgrades supports stable growth, improved margins, and resilience amid electrification trends and regulatory support.
  
• Refocusing by exiting non-core international businesses simplifies operations, reduces earnings volatility, and enhances long-term returns and earnings quality.
  
• Declining electricity sales, heavy capital spending, tighter taxes, and volatile renewables threaten profitability and earnings stability, requiring EVN to adapt its strategy for sustainable growth.

Catalysts

Provides energy and environmental services in Austria, Bulgaria, North Macedonia, Croatia, Germany, and Albania.

• Accelerated annual investment program (€900 million per year through 2030) focused on renewable generation, grid infrastructure, and e-mobility positions EVN to benefit from increasing electricity demand driven by decarbonization initiatives and electrification trends, supporting revenue and long-term earnings growth.
  
• Expansion of wind and solar assets (targeting 770 MW wind and 300 MWp solar by 2030), combined with strong project pipeline, provides future-proofed, lower-cost, and high-margin green energy capacity, likely leading to improved margins and top-line growth as renewable penetration and demand increase.
  
• The strategic divestment of the international project business (WTE Group) refocuses operations on core regulated markets, simplifying the business profile, reducing earnings volatility, and potentially boosting ROIC and earnings quality over time.
  
• Continuous investment in digitalization and smart network upgrades enhances operational efficiency, reduces system losses, and increases network reliability, supporting stable or expanding net margins going forward.
  
• Regulatory trends, including government incentives for renewable investment and grid expansion, underpin EVN's large CapEx program and provide a supportive backdrop for regulated asset base growth and more predictable, stable long-term cash flows and earnings.

EVN Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EVN's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.3% today to 12.6% in 3 years time.
• Analysts expect earnings to reach €451.1 million (and earnings per share of €2.4) by about September 2028, down from €453.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.2x on those 2028 earnings, up from 9.0x today. This future PE is greater than the current PE for the GB Electric Utilities industry at 10.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.53%, as per the Simply Wall St company report.

EVN Future Earnings Per Share Growth

Risks

• The ongoing trend of customer-owned renewable generation (especially rooftop photovoltaics) is driving a decline in electricity sales volumes for EVN, potentially reducing long-term revenue growth from the core electricity supply business.
  
• Intensifying competition in the electricity market is leading to year-on-year declines in electricity sales volumes and revenue from own generation, which may compress net margins if EVN cannot offset these declines with efficiency gains or new revenue streams.
  
• Heavy reliance on high, ongoing capital expenditures (€900 million annually until 2030) elevates EVN's net debt and gearing, exposing the company to the risks of rising interest rates or tighter financing conditions, which could suppress earnings and limit future expansion.
  
• The newly tightened windfall tax regime in Austria-lowering the price cap and increasing the tax rate on excess earnings until 2030-could further constrain profitability on existing and new generation assets, putting downward pressure on net margins and group net results over the long term.
  
• Revenue volatility due to weather-dependent renewable asset generation (e.g., weak wind and water conditions) creates operational risks; subdued or fluctuating volumes and low market prices, as experienced in the period, may persist or intensify with climate change, negatively impacting earnings consistency.

Valuation

• The analysts have a consensus price target of €32.875 for EVN based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €40.9, and the most bearish reporting a price target of just €25.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.6 billion, earnings will come to €451.1 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 5.5%.
  
• Given the current share price of €22.95, the analyst price target of €32.88 is 30.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.