ERG SpA (STU:ER9) Q2 2024 Earnings Call Highlights: Strategic Investments and Growth Amidst ...

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  • EBITDA: EUR281 million for the first half, up 4% year on year.

  • Adjusted Net Profit: EUR106 million for the first half, down 7% year on year.

  • Net Financial Position: EUR1.9 billion as of June 30, 2024.

  • Investments: EUR444 million in the first half, significantly up year on year.

  • Revenue from New Assets: EUR28 million contribution in the first half.

  • Second Quarter EBITDA: EUR116 million, EUR9 million higher than Q2 2023.

  • Second Quarter Adjusted Net Profit: EUR28 million, lower than EUR36 million in Q2 2023.

  • Full-Year EBITDA Guidance: EUR520 million to EUR580 million.

  • Full-Year CapEx Guidance: EUR550 million to EUR600 million.

  • Full-Year Net Financial Position Guidance: EUR1.75 billion to EUR1.85 billion.

Release Date: August 02, 2024

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

Positive Points

  • ERG SpA (STU:ER9) reported a 4% year-on-year increase in EBITDA, reaching EUR281 million, driven by larger installed capacity and full consolidation of the US portfolio.

  • The company successfully issued its fourth green bond for EUR500 million, extending its average debt duration to over 5 years.

  • ERG SpA (STU:ER9) completed significant projects, including a 101-megawatt capacity project in Sicily and acquisitions in the US and France.

  • The company maintained a strong financial structure, with Fitch confirming its investment-grade rating.

  • ERG SpA (STU:ER9) is on track to reach its target of 3.9 gigawatts of installed capacity by the end of the year, with significant contributions expected from new assets in 2025.

Negative Points

  • Adjusted net profit decreased by 7% year on year to EUR106 million, impacted by higher depreciation, financial charges, and a higher tax rate.

  • EBITDA outside Italy decreased by 16% year on year due to tough price scenarios in European countries, particularly in Germany and Spain.

  • The net financial position increased to EUR1.9 billion, reflecting investments, buybacks, and dividends.

  • The company faces challenges in Spain with high volatility in power prices, impacting revenues.

  • ERG SpA (STU:ER9) is awaiting regulatory clarity in Italy for its repowering projects, which could delay final investment decisions.

Q & A Highlights

Q: What are the conditions that would trigger a final investment decision on the 500 megawatts of fully authorized projects, particularly regarding the FER X pricing? A: More than 300 megawatts are Italian repowering projects, awaiting the FER X issuance. The draft decree suggests a price range between EUR70 and EUR95 per megawatt hour. We hope for clarity by year-end to participate in auctions and secure a 20-year CfD, which will guide our final investment decisions.

Q: Can you provide some qualitative indications for 2025, considering factors like green certificate prices and additional capacity? A: For 2025, we expect full contributions from assets entering operation in 2024, including the US portfolio. We have hedged roughly 1 terawatt hour of production at prices above EUR100 per megawatt hour. The value of green certificates is expected to increase, potentially reaching EUR60.

Q: Could you elaborate on the potential for battery storage projects, especially in the US? A: Battery storage is increasingly important due to market volatility. We are exploring opportunities in Europe, particularly in Spain and Northern Ireland. In the US, while we haven't yet explored storage with Apex, we are open to potential opportunities.

Q: What is the expected EBITDA contribution from the US assets on a full-year basis, and what are the contractual schemes for these assets? A: The US assets are expected to contribute around EUR40 million in EBITDA for the full year. The production is covered by long-term PPAs, ensuring stable revenue streams.

Q: How do you view the current wind CapEx trends, and what are your expectations for the future? A: Wind CapEx is currently between EUR1.5 million and EUR1.8 million per megawatt. This increase reflects the higher costs of turbines and balance of plant expenses. We remain cautious but have factored these trends into our business plan.

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

This article first appeared on GuruFocus.