Enersense

The company's focus on profitability, cash flow and safeguarding its core service operations has started well. Q3 net sales and clean EBITDA were remarkably higher than LSEG Data & Analytics consensus expected. Losses from growth projects have declined, leading the EBITDA margin to be 7.7% in Q3. Restructuring has not affected its sales initiatives nor its capability to win new projects. We upgrade our 2024 estimates, but net sales and relative profitability for 2025 are highly dependent on possible divestments. We keep our fair value range of EUR 4.5-5.6 per share, which is based on a DCF model and backed by a peer group comparison. Based on our current estimates, Enersense's EV/EBIT 2025E is 6.7x. Marketing material commissioned by Enersense.

Net sales of EUR 112m was well above our expectation (EUR 91m) in Q3. The company’s EBITDA margin was 7.7% compared to our expectation of 5.3% in Q3. Losses related to offshore operations have declined and project deliveries have been successful. Moreover, tight efficiency programme has supported profitability. The full year 2024 guidance is unchanged. Order book was down by 31% in Q3 on y/y basis but the company has also won new bigger contracts during Q4 2024. Revenue is expected to be EUR 365-390m (Nordea EUR 382m) and reported EBITDA EUR 4-8m (Nordea EUR 4m). Clean EBITDA guidance for core operations is EUR 17-21m in 2024. Successful divestments of non-core assets would alter the balance sheet a lot and we expect to hear some news before end of the year 2024. A possible divestment of wind power development portfolio of 5GW could even lead to a positive surprise we believe. The company could set new long term financial targets for growth and profitability when there is more information regarding the restructuring process. Focus has reverted to project and service operations and the share has decent upside potential if the restructuring programme and strategy execution are successful. If net sales were EUR 300m, with an EBIT margin of 3.5%, zero debt and zero interest expenses, EPS could be EUR 0.51 we calculate.

The recent period of strong revenue growth may have come to an end in Q2, as we expect negative revenue growth for Q3 y/y. We believe a strategy change will bring Enersense back to its roots as a service provider and the next bigger potential newsflow could be related to the divestment of the wind development portfolio. EV charger and offshore platform operations could also be divested, we argue. The wind power development portfolio looks sizeable, and the divestment price could therefore lead to a positive surprise. However, many onshore projects are halted, owing to the low power price, modest demand growth and high interest rates. We keep our fair value range of EUR 4.5-5.6 per share intact, based on a DCF model and peer group comparison. We note that Enersense's fair value heavily depends on the possible divestment prices of its operations. Marketing material commissioned by Enersense.

The beginning of 2024 was tough, but the worst could be behind us. Enersense expects to see a gradual improvement starting in Q3. The company has a new management team and a new strategy. Its focus is set on cash flow, profitability and safeguarding its core service operations. We believe a divestment of the wind power development portfolio could happen in H2 2024. We do not yet include divestments in our estimates, owing to uncertainty related to timing and divestment prices, hence we argue that the divestment could lead to a positive surprise. While waiting for bigger news, we keep our fair value range of EUR 4.5-5.6 per share, which is based on a DCF model and backed by a peer group comparison. Marketing material commissioned by Enersense.

Net sales was above our expectation in Q2 but order book was down by 21% on y/y basis. The company also downgraded its full year 2024 net sales guidance by 6% due to weak demand for renewable energy projects and because of weak EV charger markets. The net result was EUR -13.7m in Q2 leading reported equity ratio to be 15.8%. However, the worst could now be behind. The focus is now set to new strategy which is expected to improve cash flow. Enersense has also launched a tight efficiency programme to support profitability. New covenant levels for end of 2024 are equity ratio over 18%, net debt per EBITDA under 6x and liquidity of EUR 5m. Covenants for end of 2025 are equity ratio over 30%, net debt per EBITDA 2.25x and liquidity of EUR 15m. Successful divestments of non-core assets would help a lot and we expect to hear some news before end of the year 2024. A possible divestment of wind power development portfolio of 5GW could even lead to a positive surprise we believe. We also expect the company to set new long term financial targets when there is more information regarding divestments and the restructuring process.

Focus has reverted to project and service operations. Enersense could therefore divest its three growth engines, which are EV chargers, offshore platforms and onshore development portfolio. The company ran out of resources at the same time that the market halted, owing to the high interest rate environment, making it hard to continue pursuing its old growth strategy. A clear change in strategy will bring Enersense back to its roots and should offer a lower risk profile. We do not yet include divestments in our estimates because of the uncertainty related to timing and divestment prices. Due to the high uncertainty regarding order intake, we lower our estimates and derive a trimmed fair value range for Enersense of EUR 4.5-5.6 (5.8-7.4) per share. Our valuation approach is based on a DCF model, backed by a peer group comparison. Marketing material commissioned by Enersense.

The company changed its strategy and abandons its plans to build 600MW of own wind power capacity. Moreover, onshore wind development projects will be sold. Enersense has a total of ~5GW in onshore wind power projects in the development portfolio and one of the key issues in the future is the possible divestment price of these projects. The company could also divest its offshore and EV operations to concentrate core service operations. The high interest rate environment has delayed many projects in charging, onshore wind and in offshore operations leading to a renewal of the strategy. The company’s offshore business has been (EBITDA) loss making. The EV charging business has also burdened profitability. The company’s underlying core service operations reported EUR 20m EBITDA in last year. We have forecasted EUR 19m EBITDA for 2024 including all operations. Enersense has also launched an efficiency program to support profitability and is looking for a new CEO. Moreover, the company made an agreement with its financing providers on EUR 10m senior unsecured revolving credit facility, leading to changes in covenants. A change in the strategy will reduce company specific risks, improve financial position but also lower growth expectations in the medium-term.

The company writes down EUR 6m receivable which will have a corresponding negative impact on the EBITDA in Q2 2024. Enersense also withdraws its full year 2024 EBITDA guidance of EUR 15-25m for the time being. The company’s net sales guidance 2024 will remain unchanged. The reason for the write down is related to two projects with Lithuanian electricity transmission system operator Litgrid during 2021-2023. By excluding write-down, relative profitability still needs to improve to reach the old EBITDA guidance midpoint of EUR 20m in 2024 we note. Our EBITDA forecast has been EUR 18.7m in 2024. Risks related to profitability and the balance sheet are also visible in the share price which has declined by ~25% year to date. Weak net results have led to a relatively low equity ratio. We note that Enersense received a waiver from financiers because the adjusted equity ratio was under the covenant level as of the end of March 2024. Enersense is negotiating to further specify the covenant level for the full-year 2024.

Full-year revenue and EBIDA guidance from the company remains intact but we lower our 2024 EBITDA forecast due to weak profitability in the offshore business. Q1 was better than we expected due to wind power milestone payments that we expected later in 2024. Revenue growth was 31% in Q1 y/y and we expect over 10% revenue growth for the full year. The order backlog declined by 3% q/q and 15% y/y but the company expects order intake to improve in the near future. Our long-term estimates are unchanged and we reiterate our fair value range for Enersense of EUR 5.8-7.4 per share. Our valuation approach is based on a DCF model, backed by a peer group comparison. Marketing material commissioned by Enersense.

Net sales was 3% above Nordea’s estimate in Q1. The company’s EBITDA was EUR 4.5m compared to our expectation of EUR 3.0m in Q1. Sales gains from completed wind power projects were the main reason for a good performance. The order backlog was EUR 445m which is slightly under our expectation. The order backlog declined by 3% q/q and 15% y/y. Political strikes did not have any meaningful impact for the company’s operations in Q1. The net result was EUR -5.5m in Q1 leading reported equity ratio to be 22.8%. Financiers approved a lower limit for the equity ratio covenant in Q1. Enersense is negotiating with financiers to further specify the covenant level for the full year 2024. Full year guidance was unchanged.