MPC Energy Solutions N.V.

Here comes the sun // Initiate with BUY

Christian Sandherr04 Apr 2024 05:46

MPC Energy Solutions (MPCES) is ready for a virtuous growth cycle: The integrated IPP owns 144 MW (99 MW proportionate) of PV and CHP assets (incl. under construction) and has a 336 MW development backlog (225 MW of mature projects).

The regional focus of MPCES is Latin America and the Caribbean, which offer plenty of attractive growth prospects. Although boasting an impressive overall renewable energy share of 63%, certain nations, notably the Caribbean countries, find themselves trailing behind with a meagre average of 8% but with targets of 50-100% during the next 10-20 years. This created a lot of pent-up demand: Until 2030, the regions need an incremental 50 GW of renewable assets to remain on the net-zero trajectory.

Assets in these regions are in high demand due to attractive returns (>15% equity IRRs) on the back of high power/power purchase agreement (PPA) prices coupled with strong solar irradiation leading to high full load hours and long-term PPAs with private corporates, private and state-owned utilities.

However, access to suitable assets remains one of the key bottlenecks in the industry. By offering tailored energy solutions for each client with a technology agnostic approach rather than trying to find clients for halfway developed projects, MPCES put itself at the forefront of the regions’ transformation, since it is (1) able to de-risk its projects and (2) gain access to sufficient high-quality PPAs.

Ready to kick-start a cycle of growth. While FY23 was a transition year with the departure of the former CEO and the resulting strategy overhaul (divestment of several projects and focus on co-investments to improve equity IRRs), the company's mid-term should be marked by strong growth. MPCES' current proportionate production portfolio can generate annual sales of around $ 11.4m (eNuW). This is seen to strongly increase as MPCES executes its backlog. San Patricio alone (construction started at the end of Feb.) should contribute $ 4m additional sales annually. The remaining 225 MW of mature development projects could boost annual proportionate sales to roughly $ 31m (eNuW, 51% ownership and $ 65 per MW/h). With incremental EBIT margins north of 40%, the group’s EBIT margin would hence surpass 30% (not reflected in eNuW until the projects are under construction).

Initiate with BUY and a NOK 23 PT. We value MPCES on a sum-of-the-parts (SOTP) valuation, separately accounting for the value of its current IPP portfolio (NPV) and its development backlog (multiple).


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Christian Sandherr

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