Should you Punt on this Utilities Stock – Greencoat Renewables?

Greencoat Renewables PLC

Greencoat Renewables PLC (LON: GRP) is an FTSE AIM 100 index listed Ireland-based company that invests in renewable energy infrastructure assets. 

Rationale for Valuation – Speculative Buy at EUR 1.155

• Share Issuance Programme: GRP proposed a share placing on 21 March 2022 under its 400 million Share Issuance Programme launched on 4 October 2021, to pursue an attractive M&A pipeline across Europe.
• Acquisition Benefits: On 16 February 2022, GRP acquired the Tullahennel wind farm which shall boost the total installed capacity to 837 MW.
• Financial Growth: Moreover, the Company had shown a significant upward trend in top-line business and bottom-line profitability for H1 FY21. Overall, GRP had enhanced its ability to pursue a strong near and medium-term pipeline of opportunities in both Ireland and Europe.
• Robust Net Cash Generation: The Company had delivered €70.5 million of net cash generation as the portfolio generated 1,522 GWh of electricity during FY21, while it was 1,404 GWh for FY20.
• Increase in NAV: The NAV per share increased slightly in the period from 101.1 Eurocents per share on 31 December 2020 to 105.1 Eurocents per share as of 31 December 2021.

• Technical Indicator: From a technical standpoint, the 14-day RSI (~45.26) is still close to the oversold zone, while the price is trading between the middle and the lower Bollinger Bands.
• Key Geographic Presence: GRP had expanded its footprints into the key Spanish markets with the acquisition of a 50 MW solar farm from Lightsource bp.

Key Risks

• Government Policy: Any unfavorable change in government policy on renewable energy may impact the top-line business of the Company.
• Other Significant Risks: The lower-than-expected lifespan of the wind turbines can adversely impact the business scalability to a certain extent.
• Gloomy Outlook: The year 2022 is expected to be the year of inflation, Central Bank tightening, and wage pressure. All these factors can hurt the corporate profits and equity markets.

FY21 Financial Highlights (for the year ended 31 December 2021, as of 28 February 2022)

 (Source: Company result)

• Robust Portfolio: During FY21, the portfolio surged to 25 assets with a net generating capacity of 800 MW.
• Attractive Dividends: It declared a dividend of 6.06 Eurocent in FY21, with a target of 6.18 Eurocent per share for FY22.

One Year Share Price Chart

 (Source: Refinitiv, Analysis conducted by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

*Peers: SSE PLC, HICL Infrastructure PLC, Centrica PLC, and Drax Group PLC.

*All selected peers are LSE-listed Companies from the Utilities sector.

Conclusion

Based on the robust net cash generation and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Greencoat Renewables PLC at the closing market price of EUR 1.155 (as of 24 March 2022), with a lower double-digit upside potential based on 13.40x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Nevertheless, markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’ 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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