Large-Scale BESS Expansion And Funding Risks Will Pressure Long-Term Earnings Stability

Catalysts

About Grenergy Renovables

Grenergy Renovables develops, finances and operates solar and battery energy storage projects across Europe, Latin America and the U.S.

What are the underlying business or industry changes driving this perspective?

• The rapid build out of large scale BESS platforms such as Oasis of Atacama, Central Oasis and Greenbox exposes Grenergy to the risk that capacity payments, ancillary service tariffs or energy trading opportunities evolve less favorably than assumed. This could cap revenue growth and compress project level returns.
• The heavy tilt toward merchant exposure in key projects like Elena and the reliance on securing future PPAs or tolling agreements leaves cash flows sensitive to future power price outcomes and contract terms. This may limit EBITDA stability and visibility.
• The plan to invest about €3.5b over 2025 to 2027, with around €1b of CapEx already expected in the first year, requires sustained access to project finance, tax equity and asset rotation proceeds. Any disruption in these funding channels could pressure net debt metrics and delay earnings contributions.
• The push into multiple new BESS markets in Europe and the U.S., each with different regulatory regimes, auction designs and grid rules, increases execution complexity and the chance that some projects earn lower than targeted IRRs. This could weigh on consolidated margins.
• Rising global demand for batteries from data centers and other power intensive users could keep storage equipment and grid connection costs higher than management hopes. This may limit the benefit from expected efficiency gains and constrain future net margin improvement.

Assumptions

This narrative explores a more pessimistic perspective on Grenergy Renovables compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Grenergy Renovables's revenue will decrease by 8.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 9.5% today to 19.1% in 3 years time.
• The bearish analysts expect earnings to reach €153.0 million (and earnings per share of €5.29) by about January 2029, up from €98.9 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €328.0 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.4x on those 2029 earnings, down from 24.0x today. This future PE is lower than the current PE for the ES Renewable Energy industry at 20.5x.
• The bearish analysts expect the number of shares outstanding to decline by 2.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.76%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Grenergy is rapidly building out large solar and BESS platforms such as Oasis of Atacama, Central Oasis, Greenbox in Europe and Elena, which together represent gigawatt scale capacity that can continue to add sizeable contracted and merchant volumes over several years, potentially supporting revenue and EBITDA rather than causing a sustained decline in earnings.
• The company is progressing a very large development and construction pipeline, with more than 75 gigawatt hours of storage projects, around 12 gigawatts of solar and around €3.5b of planned CapEx between 2025 and 2027. This creates multiple options to reallocate capital between markets and technologies if returns shift, which can help protect long term margins and earnings.
• Management continues to monetize projects through asset rotation to counterparties such as KKR, Allianz, DIF and CVC, with recent deals reported at enterprise value to invested capital multiples around 1.6x rather than the 1.3x used in their Capital Markets Day. This could support capital gains, strengthen the balance sheet and provide additional funds for growth investments and future earnings.
• There is clear progress on securing tolling agreements and PPAs across Chile, Peru, the U.S. and key Greenbox markets in Europe, alongside increasing contracted volumes that already represent 88% of total electricity production. This could increase visibility of cash flows and provide some stability to revenue and net margins even if merchant markets become less favorable.
• Grenergy reports that net debt is below sector averages on a reported basis and that pro forma net debt to EBITDA ratios can fall sharply after already agreed asset rotations. The company is also maintaining a cash position of €346 million even after €713 million of CapEx in 9 months, which may reduce financial risk and support its ability to keep funding projects that feed future EBITDA and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Grenergy Renovables is €72.0, which represents up to two standard deviations below the consensus price target of €84.66. This valuation is based on what can be assumed as the expectations of Grenergy Renovables's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €100.0, and the most bearish reporting a price target of just €72.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be €799.0 million, earnings will come to €153.0 million, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of €84.4, the analyst price target of €72.0 is 17.2% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
  
• 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.