Enviro: Updated estimates following FID for Uddevalla
Research Update
2024-02-09
08:45
Redeye updates its estimates and fair value range for Enviro following the final investment decision for the Uddevalla plant. We argue that the case has been derisked following the signed offtake agreements with Michelin, Nokian tyres, Preem, and H&G Group. Furthermore, the total value of the offtake agreements was higher than we expected, which we consider positive.
Mattias Ehrenborg
Our key estimate changes refer to a 14% increase in revenue per ton of ELT, going from SEK7771 per ton to SEK8861 per ton, due to the offtake agreements indicating a higher price level than we expected before. We also slightly pushed the timing of the roll-out due to the final investment decision coming later than we previously expected, as well as Enviro highlighted that the second plant construction (after Uddevalla) won’t be initiated until Uddevalla has been commissioned, whereas we had previously expected semi-parallel construction.
We argue that the risk in the Enviro case has been reduced on the back of the legally binding offtake agreements, as the revenue generation from the Uddevalla plant is more certain now than before. Also, the financing of the plant is guaranteed by Antin (in line with earlier communication), which we consider positive. We lower our WACC from 12.5% to 11.5% on the back of these factors. All in all, the new fair value range sits at SEK1.2(1.1)-SEK11.6(11.1) with a base case of SEK8.0(5.9) per share.
| SEKm | 2020 | 2021 | 2022 | 2023e | 2024e |
| Total Revenue | 1.9 | 8.6 | 7.7 | 13.0 | 37.5 |
| Revenue Growth | 59.6% | 353% | -10.7% | 69.5% | 189% |
| EBITDA | -37.0 | -43.5 | -69.8 | -76.8 | -56.7 |
| EBIT | -49.8 | -56.9 | -83.8 | -90.9 | -70.7 |
| EBIT Margin | -2629% | -663% | -1094% | -700% | -189% |
| Net Income | -50.0 | -57.0 | -83.6 | -91.3 | -71.1 |
| EV/Sales | 885 | 140 | 169 | 121 | 118 |
| EV/EBIT | -26.8 | -18.6 | -16.1 | -17.0 | -24.4 |
Updated price levels for recycled raw materials
In the press release, Enviro states that the total value of the offtake agreement amounts to EUR180m or around SEK2bn. We understand that the value is for 5-10 years, indicating EUR18-36m or SEK200-400m pa during the same time period. It does not state if there will be a ramp-up in volumes or what the selling price of each material will be per ton of end-of-life tyres (ELT).
However, we understand that the offtake agreements do not consider the total capacity of Uddevalla (34,500k tons), as Enviro wants to have a margin of safety to be able to fulfil its side of the offtake agreement. Otherwise, there would likely be negative financial repercussions if Enviro failed to deliver the promised volumes.
Disclosures and disclaimers