Ecoener Investment thesis
A renewable energy IPP with full potential
Hi there!
This week we publish a small gem in the Spanish renewable market with a presence in several Latin American countries and a significant pipeline under development in several European countries.
The Week in the market: One pager with a concise summary of the markets plus the highlights of the week regarding macroeconomy, liquidity, commodities, Bitcoin, Earnings season..
Ecoener Investment thesis: Renewable energy company (IPP) with an operational portfolio of 341MW across multiple technologies (Hydro, Wind, Solar) in 5 countries, and 399MW under construction expected to be completed before 2Q25. Market capitalization of €200 million, and enterprise value of €500 million. 71% CEO-founder owned.
Portfolio Management: Including updates on our 3-stage monitor, comments on several companies, and our macro views, along with their respective movements in both equities and all asset portfolios (Golar LNG, One Group Hospitality… updates)
The Week in the Markets
Bad week for the main indexes marked mainly by upside surprises in inflation data and signs of moderating consumer spending. In fact, it was the second consecutive week of declines for the S&P 500 since October. The hardest hit of the week were again the small caps, where neither growth was spared this week. The main consequence of the data was the rise in bond yields across the globe.
Outside the United States, a good week for international stock markets where Europe and China advanced significantly (corporate data and reaffirmed expectations of rate cuts following inflation data). The discordant note was Japan, where everything indicates that the first rate hike in 17 years is imminent.
By sectors, energy was the best performer helped by the good week that oil had with advances of 4%, and the worst were Real Estate and Consumer Discretionary amid new fears of rate cut delays due to CPI and PPI data.
Highlights of the week
Macro Data
Important week in terms of macroeconomic data with the release of the latest CPI (3.2% vs 3.1%, with the core data - excluding food and energy - at 0.4% vs expected 0.3%), PPI reporting 0.6%, above the expected 0.3%, and weak retail sales. Retail sales increased by 0.6% MoM in February, below the forecasted 0.8% (following a -0.7% drop in January).
This relatively modest increase in sales, combined with a further decline in January, suggests a clear slowdown in consumer spending.
The CPI data worries the market as it indicates that the inflation seen in January wasn't just a one-time thing, primarily due to the increase in Core CPI. However, despite the number, it is still expected that the FOMC will keep the federal funds rate unchanged at the March meeting and begin the easing cycle in June (currently 60% probability).
Europe
The DAX index of Germany ended at a new all-time high after data confirmed that domestic inflation moderated in February to 2.7%.
The difference in yields between German and Italian 10-y bonds decreased notably because of rising trust in Italy's economic policies and heightened interest in high-yield bonds in anticipation of a probable decrease in borrowing expenses later in the year.
UK's unemployment rate unexpectedly rose to 3.9%, while wage growth fell to 6.1%, the lowest since mid-2022. Despite this, signs of economic recovery emerged as GDP increased by 0.2% in January, fueled by retail and wholesale expansion, although it fell by 0.1% over the three months through January.
Japan
Rumors suggest that the Bank of Japan will soon announce its first rate hike since February 2007, marking a turning point for the Bank of Japan's long-standing monetary easing policy. The central bank sees an opportunity to normalize its monetary policy now that inflation is expected to stay at 2% or higher, given that major corporations and their unions have agreed to substantial wage increases this year. The main plan is to raise the policy rate, currently at -0.1%, by more than 0.1 points to guide short-term interest rates into the range of 0% to 0.1%.
Natural gas
As winter draws to a close, 2024 will be remembered as the worst winter in terms of natural gas consumption in recent years, attributed partly to mild temperatures and significantly reduced industrial consumption
Miscellaneous
The BTFP program (we published an article about it some weeks ago) has now expired
Bitcoin & Crypto
Another week of tremendous inflows into Bitcoin ETFs, with prices surpassing $73,000. It's absolutely insane. Additionally, the list of countries offering crypto products on their exchanges continues to grow, with the London Stock Exchange announcing this week that it will accept Bitcoin and Ethereum crypto ETN applications in the 2nd quarter of 2024.
Earnings Season
Ecoener Investment Thesis
Ecoener is an Independent Power Producer (IPP) specialising in renewable energy with a diversified portfolio of assets in hydroelectric, wind, and solar PV technologies and presence in Spain, R. Dominican, Guatemala, Nicaragua and Colombia (plus a pipeline in Greece, Italy, Poland, Italy and Ecuador - in addition to the current countries)
As of today, it has 341 MW in production. Of these, it has 55MW of hydroelectric and 104MW of wind power - the load factors (hours of energy production) of these two technologies are much higher than those of photovoltaic. Furthermore, it has 399MW under construction. Almost half of them are located in Spain, but the vast majority of assets under construction are in other geographies (and it is expected to continue to be so in the future). Also important to highlight that, it has exposure to both spot prices and Power Purchase Agreements (PPAs), which we'll delve into in detail later.
His founder and CEO owns 70% of the company (he has been in charge since 1988), in May 2021, Ecoener went public on the Spanish stock market (BME Growth), raising around €100 MM (at €5.9) to fund its growth strategy, which has been very aggressive since then. In the last three years, they have nearly tripled their assets, expanded across several countries in LatAm, and begun their expansion into Europe, where they are starting construction in Greece at the end of 2025. The company currently has a market capitalisation of €200 MM.
As an IPP, Ecoener builds and owns its assets, which sets it apart from EPC companies which business is to build the plants to sell them thereafter.
These types of companies are characterized by high leverage, especially during expansion phases, as once in production, they have stable income for 20-25 years.
Today, we analyze in detail this interesting company, diversified, expanding, and with stable revenues. To do so, we study all its operational and under-construction assets, its debt and management, and conduct a valuation of its shares.
Ecoener Assets and Strategy in detail
At previously stated, at the moment Ecoener has 341 MW in production and 399 MW in construction. Ecoener's renewable energy assets are spread across three main technologies: hydroelectric, wind, and solar PV. However, there are significant differences. Hydroelectric power was mainly developed in Galicia in the company's early years. Subsequently, there was a major investment in wind power in the Canary Islands (these assets have special regulated conditions). In the last two to three years, they have purely focused on the solar pipeline, as evidenced by the over 250MW between operation and construction in the Dominican Republic, for which they have signed 15years PPAs with spectacular conditions ($88/MWh) - The projects in the Dominican Republic have an EBITDA margin of 91%.
It is important to mention that in Spain, Ecoener sells the electricity generated by its assets on the spot market (Galician assets, Canary Island has a regulated regime), while in Latin America, it sells energy through power purchase agreements (PPAs).
Hydroelectric Assets
Ecoener has a total of 55 MW of hydroelectric assets, with the majority located in Spain (with the exception of 14.2 MW in Guatemala). These assets boast an average load factor of 34%, contributing significantly to the annual energy production.
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