Renewable Expansion And E-Mobility Investments May Boost Future Earnings Amid Debt Concerns

Key Takeaways

• Aggressive expansion into renewables and strategic partnerships in e-mobility could drive growth and enhance revenue through higher generation volumes and charging infrastructure use.
  
• Divestment from international projects and focus on core operations may improve net margins, while ongoing investments aim to bolster future earnings despite short-term challenges.
  
• Declining revenue and profitability amidst competition and regulatory risks could pressure margins unless EVN enhances efficiencies or market conditions improve.

Catalysts

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

• EVN's aggressive expansion in renewable energy, particularly plans to increase wind power capacity from 500 MW to 770 MW and photovoltaic capacity from 100 MWp to 300 MWp by 2030, is expected to drive substantial growth in generation volumes, potentially increasing revenue.
  
• The investment of up to €100 million into e-charging infrastructure by 2030, coupled with existing market leadership in Austria, could significantly enhance EVN's revenue streams as demand for e-mobility grows.
  
• Strategic partnerships with well-established retail chains like XXXLutz to develop fast-charging points may increase the utilization of EVN's charging infrastructure, positively impacting revenue and potentially enhancing net margins through operational efficiencies.
  
• The sale of the international project business, including the expected resolution with STRABAG, could improve EVN’s net margins by removing less profitable or volatile business segments and focusing resources on core domestic and renewables operations.
  
• Despite an anticipated short-term decline in results due to regulatory adjustments and lower electricity prices, confirmed annual investments of €900 million until 2030 in network infrastructure and key areas are expected to bolster future earnings as infrastructure and consumption patterns mature.

EVN Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EVN's revenue will decrease by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.7% today to 14.1% in 3 years time.
• Analysts expect earnings to reach €423.2 million (and earnings per share of €2.34) by about March 2028, down from €450.6 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 16.1x on those 2028 earnings, up from 8.8x today. This future PE is greater than the current PE for the GB Electric Utilities industry at 11.8x.
• 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 5.41%, as per the Simply Wall St company report.

EVN Future Earnings Per Share Growth

Risks

• The decline in revenue was influenced by a decrease in electricity sales volumes and lower market prices, which could pressure future revenue growth given the ongoing strong competition and increased customer reliance on their own photovoltaic systems.
  
• The 19.7% decrease in net income compared to the previous year suggests declining profitability, partly due to lower realizable prices in energy marketing and increased operating expenses, which could impact earnings if market conditions do not improve.
  
• EVN's net debt increased to €1.3 billion, raising concerns about financial leverage and potential interest obligations, which could affect net margins if revenue does not grow as expected to cover rising costs and investments.
  
• Higher costs due to increasing materials and personnel expenses, as well as procurement costs in Southeast Europe, could erode net margins, especially if these costs continue to rise without a corresponding increase in operational efficiencies or revenues.
  
• Speculation about policy changes or increased taxation in the energy sector by the Austrian government presents a regulatory risk that could potentially lower earnings if new taxes or windfall taxes are introduced.

Valuation

• The analysts have a consensus price target of €32.75 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 €3.0 billion, earnings will come to €423.2 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 5.4%.
• Given the current share price of €22.15, the analyst price target of €32.75 is 32.4% 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.