Decarbonization And Electrification Will Accelerate Renewable Build-Out

Key Takeaways

• EVN is expected to surpass renewable expansion and network upgrade goals, unlocking faster revenue and margin growth as electrification and decarbonization accelerate across Europe.
  
• Strong digitalization, grid modernization, and regional export capabilities position EVN for enhanced margins, more stable dividends, and potential premium market valuation.
  
• Rapid growth in decentralized energy and tougher regulation threaten EVN's grid-based revenues and margins, while rising investment needs and fierce competition increase risks to earnings stability.

Catalysts

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

• While analyst consensus sees EVN's renewable generation capacity targets as a solid path for volume and revenue growth, the company's actual project pipeline, permitting progress, and execution track record suggest it could exceed both wind and photovoltaic expansion goals well before 2030, thus delivering outsized revenue and margin growth ahead of expectations.
  
• Analysts broadly agree that investment in e-charging infrastructure and network upgrades will support earnings, but they may be underestimating the speed and magnitude of earnings growth as electrification and EV adoption accelerate across Europe, resulting in a step-change in network volumes and regulated returns by the late 2020s.
  
• As governments intensify decarbonization targets and adopt even more ambitious climate policies, EVN is uniquely positioned among regional peers to capture disproportionate share of grid modernization and renewable build-out mandates, which could drive persistent top-line growth and upward revisions to long-term earnings estimates.
  
• Ongoing digitalization and adoption of smart grid technologies by EVN, supported by annual capital expenditures of roughly 900 million euros, are likely to significantly compress opex and reduce technical losses, boosting net margins steadily through the decade and enabling higher, more stable dividend payouts.
  
• Given rising focus on energy security and regional self-sufficiency, along with EVN's experience in cross-border utility operations, the company is poised to benefit from increasing electricity exports and interconnection projects-unlocking earnings diversification and potentially driving premium valuation multiples versus domestic-only utilities.

EVN Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on EVN compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming EVN's revenue will grow by 2.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 13.3% today to 13.4% in 3 years time.
• The bullish analysts expect earnings to reach €485.9 million (and earnings per share of €2.69) by about September 2028, up from €453.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.6x 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 continued acceleration of decentralized energy solutions, such as rooftop solar and household batteries, is highlighted by EVN's own admission of declining electricity sales volumes due to growing own photovoltaic generation, which may undermine EVN's traditional grid-based revenue streams and pressure long-term top-line growth.
  
• Rising capital expenditures, with annual investments of €900 million until 2030 primarily targeted at upgrading networks and renewables, could compress free cash flow and net margins as the company faces aging infrastructure and increasing maintenance and upgrade costs.
  
• Persistent competition and margin pressure in core markets are acknowledged by management, describing ongoing strong competition and the trend towards growing own photovoltaic generation, leading to declining revenue in key segments and signaling longer-term risks to earnings stability.
  
• Increased regulatory risk is demonstrated by the extension and tightening of Austria's windfall tax regime, imposing a 95% levy on excess earnings from electricity generation and driving greater earnings volatility and potential reduction in future net income.
  
• Overreliance on volatile market conditions-including weak wind and water resource availability, fluctuating electricity prices, and evolving government policy-remains a challenge, as evidenced by declines in renewable generation earnings and net results, which could exacerbate revenue and earnings volatility in future years.

Valuation

• The assumed bullish price target for EVN is €40.9, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of EVN's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• 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 bullish analysts, you'd need to believe that by 2028, revenues will be €3.6 billion, earnings will come to €485.9 million, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 5.5%.
  
• Given the current share price of €22.95, the bullish analyst price target of €40.9 is 43.9% higher.
  
• 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.