Future Revenue Stability Secured Through Long-term PPAs And Market Expansion

Key Takeaways

• Expansion into new markets and advancements in green hydrogen diversify revenue sources and reduce dependency on Brazilian operations.
  
• Secure Power Purchase Agreements enhance revenue stability and visibility, positively impacting future earnings and risk management.
  
• Operational and financial challenges in Brazil, high debt, and currency risks jeopardize Voltalia's profitability and stability amidst falling solar panel prices impacting margins.

Catalysts

Engages in the production and sale of energy generated by the wind, solar, hydropower, biomass, and storage plants.

• Continued growth in power generation and pipeline development, with a 13% increase in power generation and a pipeline exceeding 17 gigawatts. This suggests potential for future revenue growth as new projects come online.
  
• Stronger EBITDA growth, which increased by 34% compared to turnover growth of 28%, indicates improving operational efficiencies and higher profitability, likely contributing to improved net margins and earnings.
  
• Expansion into new geographical markets with projects under construction in the U.K., Tunisia, and Uzbekistan, supplemented by advancements in green hydrogen, promises growth in revenue diversification and reduced dependency on Brazilian operations.
  
• Secured long-term Power Purchase Agreements (PPAs) for new projects, such as those in Tunisia and Uzbekistan, providing revenue visibility and stability, contributing positively to future earnings and risk reduction.
  
• Financing improvements, with a new syndicated loan of €294 million, allowing the company to refinance existing debt and support capital expenditures, which could lower financial costs and enhance net income in the long run.

Voltalia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Voltalia's revenue will grow by 11.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.1% today to 4.4% in 3 years time.
• Analysts expect earnings to reach €33.7 million (and earnings per share of €0.26) by about February 2028, up from €33.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €45 million in earnings, and the most bearish expecting €29.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 61.0x on those 2028 earnings, up from 30.5x today. This future PE is greater than the current PE for the GB Renewable Energy industry at 30.1x.
• 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 9.57%, as per the Simply Wall St company report.

Voltalia Future Earnings Per Share Growth

Risks

• The power curtailment issues in Brazil could have a significant negative impact on Voltalia's 2024 EBITDA, potentially reducing it by €40 million, which will directly affect earnings.
  
• The delays in the completion of new transmission lines in Brazil pose ongoing risks that may potentially extend power curtailment issues, impacting revenue and operational performance in that region.
  
• Voltage's increasing gearing ratio, approaching 59%, and high financial debt levels could pose risks to financial stability, affecting overall profitability and shareholder returns.
  
• Exposure to foreign exchange fluctuation risk, especially with the Brazilian real, could further compound financial volatility and result in unpredictable impacts on earnings.
  
• The fall in solar panel prices continues to weigh on supply contracts across Voltalia's procurement activity, which could affect margins and profitability for the services segment.

Valuation

• The analysts have a consensus price target of €12.012 for Voltalia 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 €21.8, and the most bearish reporting a price target of just €9.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €766.6 million, earnings will come to €33.7 million, and it would be trading on a PE ratio of 61.0x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of €7.78, the analyst price target of €12.01 is 35.2% 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.