Arise Q2 2024 Preview: Weaker-than-expected spot prices but favourable price hedges
Research Update
2024-07-12
07:00
Redeye updates its estimates ahead of Arise’s Q2 report, which is due on 17 July. The quarter showed lower market prices for electricity than expected, which has a negative effect on our Q2 estimates. However, Arise has hedged around 25% of our expected Q2 production at favourable prices, which mutes this negative effect. Furthermore, we expect a significant production contribution from the new wind farm Lebo, as well as revenues from ongoing constructions plus the earn-out payment from the finalised project Ranasjö- and Salsjöhöjden in the development segment. The estimate changes do not affect our fair value range or base case.
ME
Mattias Ehrenborg
The Q2 2024 winds seem to have been significantly stronger than in Q2 2023 -which, according to our calculations, should generate 68.5GWh in Q2’24 vs 53.9GWh in Q2’23. This compares to the budget of 72.1GWh (also our previous est.). In addition to these numbers, we also expect Lebo (fully operational since May) to contribute with 15GWh in the quarter - bringing the total Q2 production to 83.5GWh (prev. est: 91.0GWh).
Q2 2024 presented lower-than-expected spot prices in both SE3 and SE4. We previously expected a Q2 SE3 price of EUR45/MWh vs the actual EUR31/MWh. For SE4, we expected a price of EUR60/MWh vs the actual EUR51/MWh. We also expected a capture price discount of 15% - which, according to our calculations, seems to amount to 30% in Q2, negatively impacting our estimates. All in all, our expected realised revenue/MWh is reduced from SEK692/MWh to SEK528/MWh – partly saved by successful price hedges (25% of prod.) made at EUR104/MWh. Without the hedges, we believe Arise would realise a revenue of SEK321/MWh.
We expect ongoing constructions to generate SEK19m in revenue recognition and the EUR6.6m earn-out payment for Rana- and Salsjöhöjden to add EUR2.4m to the P&L. We also expect a minor negative FX effect of SEK3m to affect Q2 numbers due to the revaluation of receivables related to ongoing constructions. A reversed effect of SEK9m took place in Q1 2024. Overall, we expect Arise to report a total EBITDA of SEK52m (SEK69m in Q2’23), vs our previous estimate of SEK74m.
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Revenues | 1,169.0 | 507.0 | 463.1 | 747.4 | 989.4 |
Revenue Growth | 243% | -56.6% | -8.7% | 61.4% | 32.4% |
EBITDA | 851.0 | 286.0 | 247.1 | 483.9 | 693.8 |
EBIT | 790.0 | 222.0 | 181.6 | 419.6 | 626.2 |
EBIT Margin | 67.6% | 43.8% | 39.2% | 56.1% | 63.3% |
Net Income | 772.0 | 205.0 | 129.5 | 306.5 | 479.9 |
EV/EBITDA | 2.5 | 7.7 | 10.3 | 4.5 | 2.5 |
EV/EBIT | 2.6 | 9.9 | 14.1 | 5.1 | 2.7 |
Case
A Swedish renewable energy producer and developer
Evidence
A proven market leader
Challenge
Complex permitting processes, long lead times, and construction risks
Challenge
Realised electricity prices
Valuation
Signficant upside potential and limited downside risk
People: 4
The new strategy, with project development and management as the main growth area, has been executed with great success so far. The communication regarding business and financials has improved and our view is that Arise is transparent and balanced in its communication. Management has relevant experience and credibility and some also have significant amounts of Arise-shares. The company culture appears to be dynamic and strong. A few large institutional owners give stability and through Johan Claesson and CA Fastigheter, Arise has a long-term committed and active owner.
Business: 3
Arise has two business segments: Operation of own wind farms and project development & management. The business conditions for these two are different in many respects. In the own wind farms, there is overall limited possibilities to impact revenues or costs. On a positive note, revenues are repetitive and operations are not dependent on key individuals. However, product differentiation is virtually impossible as electricity is a commodity. Project development is different in these respects. So far Arise has a very good track record with most of its project deals coming out in line with budget. The outlook for both segments is still favorable, with structurally high electricity prices and good profit margins on projects, although electricity prices is a variable that is very difficult to predict.
Financials: 2
Arise has generated good cash flows but depreciations and amortizations have weighed on earnings. Hence our rating is burdened by historically reported losses. Since 2018 underlying profitability has clearly picked up and key metrics are gradually improving. The balance sheet is now robust as net debt has decreased significantly thanks to strong cash flow generation. Our Financials rating will certainly improve further if Arise delivers approximately in line with our forecasts.
Income statement | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Revenues | 1,169.0 | 507.0 | 463.1 | 747.4 | 989.4 |
Cost of Revenue | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Operating Expenses | 318.0 | 221.0 | 216.0 | 263.5 | 295.6 |
EBITDA | 851.0 | 286.0 | 247.1 | 483.9 | 693.8 |
Depreciation | -61.0 | -65.0 | -65.4 | -64.3 | -67.6 |
Amortizations | - | - | - | - | - |
EBIT | 790.0 | 222.0 | 181.6 | 419.6 | 626.2 |
Shares in Associates | - | - | - | - | - |
Interest Expenses | -26.0 | -62.0 | -53.6 | -50.1 | -11.0 |
Net Financial Items | 32.0 | 100.0 | 85.6 | 73.6 | 11.0 |
EBT | 772.0 | 205.0 | 153.1 | 393.0 | 615.2 |
Income Tax Expenses | 0.00 | 0.00 | -23.6 | -86.5 | -135.3 |
Net Income | 772.0 | 205.0 | 129.5 | 306.5 | 479.9 |
Balance sheet | |||||
Assets | |||||
Non-current assets | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Property, Plant and Equipment (Net) | 1,164.0 | 2,175.8 | 2,307.8 | 2,378.5 | 2,348.9 |
Goodwill | - | - | - | - | - |
Intangible Assets | 25.0 | 30.0 | 30.0 | 30.0 | 30.0 |
Right-of-Use Assets | - | - | - | - | - |
Other Non-Current Assets | 243.0 | 304.3 | 326.0 | 326.0 | 326.0 |
Total Non-Current Assets | 1,432.0 | 2,510.0 | 2,663.8 | 2,734.5 | 2,704.9 |
Current assets | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Inventories | - | - | - | - | - |
Accounts Receivable | 237.0 | 379.8 | 454.0 | 231.0 | 231.0 |
Other Current Assets | 26.0 | 0.25 | 0.00 | 0.00 | 0.00 |
Cash Equivalents | 1,220.0 | 917.0 | 879.4 | 1,278.4 | 1,219.5 |
Total Current Assets | 1,483.0 | 1,297.0 | 1,333.4 | 1,509.4 | 1,450.5 |
Total Assets | 2,915.0 | 3,807.0 | 3,997.2 | 4,243.9 | 4,155.4 |
Equity and Liabilities | |||||
Equity | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Non Controlling Interest | - | 318.5 | 322.2 | 361.2 | 431.0 |
Shareholder's Equity | 1,616.0 | 1,887.5 | 1,943.1 | 2,150.7 | 2,492.4 |
Non-current liabilities | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Long Term Debt | 925.0 | 1,074.6 | 1,156.0 | 1,156.0 | 656.0 |
Long Term Lease Liabilities | - | - | - | - | - |
Other Non-Current Lease Liabilities | 117.0 | 350.4 | 362.0 | 362.0 | 362.0 |
Total Non-Current Liabilities | 1,042.0 | 1,425.0 | 1,518.0 | 1,518.0 | 1,018.0 |
Current liabilities | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Short Term Debt | 27.0 | 54.0 | 56.0 | 56.0 | 56.0 |
Short Term Lease Liabilities | - | - | - | - | - |
Accounts Payable | - | - | - | - | - |
Other Current Liabilities | 231.0 | 122.0 | 158.0 | 158.0 | 158.0 |
Total Current Liabilities | 258.0 | 176.0 | 214.0 | 214.0 | 214.0 |
Total Liabilities and Equity | 2,916.0 | 3,806.9 | 3,997.2 | 4,243.9 | 4,155.4 |
Cash flow | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Operating Cash Flow | 923.0 | 223.0 | 182.5 | 608.5 | 546.4 |
Investing Cash Flow | -305.0 | -538.0 | -153.3 | -119.0 | -22.0 |
Financing Cash Flow | 464.0 | 11.0 | -100.8 | -90.5 | -583.4 |
Disclosures and disclaimers