ERG SpA (FRA:ER9) Q4 2024 Earnings Call Highlights: Strategic Expansion Amidst Financial Challenges

GuruFocus News

Thu, Mar 13, 2025, 1:05 AM 4 min read

EBITDA: EUR535 million, in line with last year and close to the midpoint of the guidance range.
Adjusted Net Profit: EUR175 million, down 22% year-on-year.
Net Financial Position: Approximately EUR1.8 billion, higher than the end of 2023.
Investment: EUR553 million, up 13% year-on-year, with 2/3 on M&A in France and the US, and 1/3 on organic CapEx.
Shareholder Remuneration: EUR1 per share dividend and a EUR23 million buyback, totaling EUR1.15 per share.
Installed Capacity Addition: 580 megawatts added, including repowering and greenfield M&A.
Green Bond Issuance: Fourth Green Bond issued, and first financing from the European Investment Bank obtained.
Guidance for 2025 EBITDA: Expected within the range of EUR540-600 million.
CapEx Guidance for 2025: Expected to be in the range of EUR190-140 million.

Warning! GuruFocus has detected 2 Warning Signs with FRA:ER9.

Release Date: March 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

ERG SpA (FRA:ER9) maintained a stable EBITDA of EUR 535 million for 2024, aligning with the previous year despite challenging conditions.
The company successfully expanded its capacity by 580 megawatts through a mix of repowering, greenfield, and M&A activities.
ERG SpA (FRA:ER9) entered the US market, marking a significant strategic milestone.
The company issued its fourth Green Bond and secured financing from the European Investment Bank, showcasing strong financial competitiveness.
ERG SpA (FRA:ER9) continues to excel in ESG, maintaining top-tier ratings and being included in the Standard and Poor 25 yearbook for the first time.

Negative Points

Adjusted net profit fell by 22% year-on-year to EUR 175 million, primarily due to higher depreciation and financial challenges from new assets.
Net financial position increased to EUR 1.8 billion, reflecting higher debt levels.
The company faced significant wind availability challenges in Europe, particularly in Q4, impacting production.
ERG SpA (FRA:ER9) reduced its CapEx guidance by 20% for 2024-2026 due to delays in the Ferris rollout and a cautious stance on the US market.
The regulatory framework for storage remains unclear, posing challenges for future flexibility and growth in battery storage projects.

Q & A Highlights

Q: I noticed a change in your value creation targets from 200-400 basis points to more than 200 basis points. Have you become more prudent, or do you see upside above 400 basis points? Also, regarding share buybacks, is there no longer a cap, and could we see buybacks of $0.40 or $0.50? Lastly, is delisting an option given your main shareholder's voting rights? A: The 200 basis points is a floor for our investments, focusing on fully secured assets. We have removed the cap on share buybacks to maintain flexibility, potentially exceeding $0.30 per share. Regarding delisting, this is a shareholder decision, but we believe our stock trades at a discount to operational assets.

Q: Can you discuss the evolution of capacity additions and your pipeline in the US, considering the regulatory environment? Also, what returns do you expect from battery investments, and can you comment on the regulatory frameworks in Italy, Spain, and Germany? A: We aim for 4.2 GW by 2026, with half already secured. Our US strategy involves acquiring operational assets with secured PPAs and tax equity schemes. For batteries, we expect returns of 200 basis points over WACC, focusing on quasi-regulated models. We await regulatory clarity in Italy and Spain to proceed with battery projects.

Q: What kind of spread are you expecting for batteries, and do you think batteries command a higher spread? Also, why wait for a route to market when tech players might offer good PPAs? A: We maintain a 200 basis point floor for secured projects. While PPAs are viable, CFDs offer longer durations and fewer obligations, making them preferable. We prefer to wait for secured routes to market to ensure investment returns.

Q: Given the current price environment in Europe, particularly in Germany and Spain, do you see these lower prices as structural or temporary? Also, are you considering investing in hydro concessions for portfolio diversification? A: The low prices in Spain last year were due to a combination of factors, but current prices have improved. We believe demand growth will sustain prices long-term. We are not currently considering hydro concessions, having divested our hydro assets due to concession uncertainties.

Q: Can you clarify your revenue structure and expectations for power prices in '25 and '26? Also, what are your views on PPA price levels and the US market? A: Our revenue structure remains stable, with positive price effects expected in '25. PPA prices are in line with previous plans, and we are satisfied with recent agreements. In the US, despite regulatory uncertainties, we remain optimistic about our operating portfolio and cautious about new investments.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

Terms and Privacy Policy

Your Privacy Choices

Utah Privacy Notice

More Info