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2018 Energy/Utility
100% Shift to Renewables: Given the prospective Deal Innogy indicates a focus towards
its high potential renewables segment and declining operating costs in renewables.
75%
RWE/E.ON- Deal: Upcoming uncertainties regarding post-merger integration,
50% especially in layoffs and brand identity.
10-16 04-17 10-17 04-18
Aggressive expansion leaves Innogy vulnerable: We question Innogy’s ambitious
DAX 30
EuroStoxx 600 Utilities project pipeline, given the oversupply in renewables in Europe and tight project
Innogy SE schedule in the U.S.
March 26th 2018: innogy takes 300MW share in “Dublin Array” Offshore Wind Farm
Lukas Weise The German company’s Irish subsidiary established a strategic partnership with Saorgus
Equity Research Director Energy to develop a 600MW offshore wind project in Ireland. The next planning phase
lukas.weise@wutis.at will be led by innogy.
+43 660 2940030
Parham Allboje March 15th 2018: innogy acquires Italian onshore wind park “Deliceto”
Equity Research Associate Following this acquisition innogy Italia now has a total wind energy capacity of 90MW.
parham.allboje.samami@gmail.com Innogy and the Italian seller, Imprese e Sviluppo, have agreed to keep the transaction
price confidential.
Jan Tanson
Key Ratios FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
Equity Research Analyst
Rev. growth % -5.48% -0.11% -4.39% -1.03% -2.47% -3.15% -2.75% -2.13%
jtanson@me.com
Gross Profit % 80.5% 79.4% 78.3% 78.9% 79.6% 79.6% 79.6% 79.6%
Thomas Unterholzner EBIT % 6.5% 6.9% 6.4% 6.8% 7.1% 7.1% 7.1% 6.9%
Equity Research Analyst Net Profit % 5.4% 5.3% 5.1% 5.3% 5.1% 5.2% 5.2% 5.0%
thomas.unterholzner@outlook.com ROIC % 6% 6% 6% 7% 6% 6% 6% 6%
Jehona Idrizi ROE % 14% 14% 17% 24% 20% 18% 15% 14%
Equity Research Analyst ND /EBITDA (x) -0.2x 1.2x 0.9x 1.3x 1.4x 1.5x 1.5x 1.6x
i.idrizi@outlook.com Interest Cov. (x) 12.4x 14.7x 12.1x 17.3x 11.6x 11.3x 11.0x 10.7x
EPS 3.89 3.58 4.59 1.58 1.66 1.71 1.74 1.80
Johannes Streihammer Payout Ratio % 75% 75% 39% 114% 80% 80% 80% 80%
Equity Research Analyst Dividend Yield % n.a. n.a. 4.9% 4.9% 4.2% 4.3% 4.4% 4.4%
johannes@streihammer.at Sources: Company presentation, Team estimates
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Equity Research 16.05.2018 Energy/Utility
Strategy
In our view, a key part of Innogy`s investment case is its ability to benefit from long-
term renewable growth opportunities in its core markets. However, Innogy is lagging
Renewables
behind other renewables-focused peers in terms of under-construction renewables
Retail capacity, resulting from the small development pipeline due to the balance sheet
Grids & Infrastructure constraints at RWE during its IPO.
Sources: Company presentation, Team estimates
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Equity Research 12.06.2018 Energy/Utility
Adding to that, with the transition to a tougher regulatory regime in Germany, we expect
Figure 11: One-year forward price of gas to see a material hit to G&I earnings. Although some of the earnings shortfall is likely to
on the wholesale market be offset by the reduction of the productivity factor Xgen as well as higher RAB, we also
account for the likely decrease in provision releases over time.
in EUR/MWh
24 2016 forward 2017 forward 2018 forward General favourable electricity demand in Germany and in Europe
22 Economic Growth
We expect electricity demand to grow solidly at c. 1.9-2.2% per year until 2021.
20 However, growth is strongly dependent on GDP growth in Europe and Germany.
18
Retail Market Electricity Prices
16 We note that key drivers of the price of energy in the EU are largely geopolitical
14 situation, national energy mixes, import diversification, network costs, environmental
protection costs, severe weather conditions or levels of excise and taxation.
12
2015 2016 2017 Key markets for Innogy, Germany (EUR 0.39/kWh), Netherlands (EUR 0.42/kWh) and
Sources: Irena.org, Boston Consulting Group UK (EUR 0.59/kWh), experienced the highest electricity prices for household
consumers (who consume 2.5k-5.0k kWh p.a.) in 2017, despite the low in 2016.
Figure 12: One-year forward price of gas Moreover, Germany and Italy (EUR 0.14-0.16/kWh) also saw attractive electricity prices
on the wholesale market for non-household/industrial consumers (who consume 0.5k-2.0k MWh p.a.).
Electricity prices during the first half of 2017 were highest among the EU Member States
in EUR/MWh
in Italy and Germany (EUR 0.14-0.16 per kWh), compared to the EU-28 avg. price of
72 2016 forward 2017 forward 2018 forward
EUR 0.114/kWh.
62
Innogy may capitalize on a favorable outlook for Germany and UK electricity prices as
52 the share of these price components will constantly increase. In fact, electricity prices for
42 retail customers rose by an avg. of c. 2% and 7%, respectively, compared to 2016.
Electricity prices increased by 8% in Germany and by 3% in the UK.
32
22 However, unpromising outlook for Retail at Innogy
Given Innogy`s treatment of Npower (subsidiary of Innogy and its Retail segment in the
12 UK) as a discontinued operation (DCO), we expect a material decline in overall Retail
2015 2016 2017 earnings in 2018 as well as a medium-term fall of retail EBIT (-14% p.a.) until 2022.
UK Netherlands Germany Challenges in UK market to continue: Npower will merge with SSE’s retail
business in 2019. The company expects Npower to breakeven on a standalone basis
Sources: Irena.org, Boston Consulting Group in 2018. We think the merger is the right strategic step forward to counter the future
headwinds from increasing competition.
Decline in German retail earnings: E-mobility and digitalization investments
pressure German retail earnings between 2018-20. We see a material 6% decline in
customers resulting in a 20% reduction of total earnings and retail EBIT margin of
just below 3% by 2022 compared to 2017.
Normalized weather conditions: Innogy expects Retail earnings to benefit from
cooler weather in Eastern Europe (c. 20-30m), but we also see increasing
competitive pressures in these markets, too.
1) annual rate at which output prices of regulated firms have to decrease; is the portion of output not explained by traditionally measured inputs of labor and capital
used in production
2) Regulatory Asset Base 3
Equity Research 12.06.2018 Energy/Utility
Innogy’s innovation strategy focuses on four key areas: „Machine Economy“, „Urban
Exponentials“, „Smart & Connected“, „Disruptive Digital“ and „Cybersec Ventures“. The
Capacity Renewable Energy (GW)
company’s innovation hub includes an accelerator program „Free Electrons“ and a
Grid Length (in km)
venture capital fund.
Sources: Thomson Reuters, Company information
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Equity Research 12.06.2018 Energy/Utility
E.ON
RWE Shareholders Capital, Shares & Voting Rights
Shareholders
RWE Downstream Beteiligungs GmbH, a subsidiary wholly owned by RWE holds a
100%
16.67% 83.33% 76.8% stake in Innogy. In Apr 2016, Innogy was created by splitting the renewables,
RWE AG E.ON SE network and retail business of RWE into a separate entity, Innogy.
Supply &
Renewables
Trading RWE, Innogy and E.ON Deal – what is it about?
Conventional E.ON, the German utility firm that is known for its giant wind-farms, has unveiled a
Networks
Power generation
complex deal to acquire Innogy’s renewables business for EUR 43bn (EUR 40.0/share)
EUR 1.5bn Retail and a series of asset swaps that will dramatically change Germany’s energy sector.
76.8%
Preussen-Elektra
Innogy SE Voluntary Closing I: Closing II:
public Joint Expiry of E.ON to take Transfer of assets Latest day of
takeover offer statement acceptance Innogy control over under consideration closing of
Renewables 12.5%
Emsland by E.ON by Innogy period AGM 2019 Innogy to RWE offer
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Equity Research 12.06.2018 Energy/Utility
#2 As E.ON unveiled, the acquirer will become a company purely focused on providing
player energy networks and services to retail customers, while RWE will acquire E.ON and
in Europe
8 Innogy’s renewables business by taking a 16.7% stake in E.ON via 20% capital
+60% increase. E.ON will acquire RWE’s 76.8% stake in Innogy by offering a combination of
5 newly issued shares and assets. In addition to the renewables businesses, RWE will
receive E.ON’s minority stake in 2 RWE-operated nuclear plants, Innogy’s gas storage
business and its stake in the Austrian supplier Kelag. For this, RWE will pay E.ON EUR
1.5bn in cash.
Deal Rationale
E.ON today E.ON after
The deal comes largely after both RWE and E.ON were massively affected by the
Sources: Company data Deal
“Energiewende” in Germany, and the radical move away from fossil fuels (and the
EBITDA EURbn #1 announcement of phasing-out nuclear power in 2011) towards renewables. While E.ON
37 player
spun off its conventional power operations to Uniper leaving it with the renewables,
+61% in Europe
networks and customer solution business, RWE focused on keeping conventional and
23 nuclear power operations but spinning off its renewables business into Innogy. Thus,
after steep cost cuts and company-splits, the deal is about making clear cuts, now and
strategically positioning the 2 leading European energy companies well for the future.
The deal values Innogy’s equity at EUR 22bn which represents a c. 10% premium on its
current market valuation of EUR 19.98m (as at May 26, 18).
E.ON today E.ON after
Deal We note that we see the proposed transaction as being positive for both RWE and
RAB EURbn
#1 E.ON, although more for the latter than the former.
Sources: Company data
player As subsidy schemes start to expire across E.ON’s renewable business, the
50 in Europe concentration on regulated networks (c. EUR 37bn RAB2 vs. EUR 23bn before) and
+61%
retail (serving c. 50m customers by then vs 31m before) will improve its earnings
31 outlook in the mid-term as it expects cost synergies amounting to EUR 600-800m
p.a. by 2022 coming mainly from its 5k job cuts. However, this results in a c. 30%
post-merger accretion from 2022. The company will derive c. 80% of its EBIT from
stable, government-regulated activities.
RWE will benefit from the integrated renewables business from both Innogy (ceases
E.ON today E.ON after to exist) and E.ON in the long-term and the double-digit renewables market growth. It
Deal will run generation capacity at c. 10 GW from on- and offshore wind as well has
Customer (m) hydro and photovoltaics.
Sources: Company data
Given our SOTP analysis of Innogy, we note that the sell of its G&I and Retail
#3 segment stipulates an upgiving of 20bn and 4.9bn in EV in 2020, leaving it with the
player remaining 5.6bn EV in renewables (see Appendix 8.2.4).
10 in Europe
+105%
The transaction is expected to be closed by the end of 2019. The transfer of the
businesses will take place after the closing date, which we expect by early 2020.
3.9
SSE / Npower merger ahead
In early 2018, the subsidiary of Innogy, Npower (UK energy retailor) and SSE (UK utility
company engaged in generation, transmission, distribution and supply of electricity, gas
RWE RWE after and trading) have agreed to merge their retail businesses. The merger will combine
(Innogy) Deal SSE’s energy and services business (wholesale & retail segment, excluding its B2B and
Renewable capacity GW 1) Ireland business) and Npower (100% retailer) to create a new standalone energy retail
Sources: Company data
company that will be listed on the LSE. Innogy will own a minority stake of 34.4% in the
Cap- Total
Mcap EV acity Output EBITDA combined company, while the remaining equity of 65.6% will be free float.
Name 2018 2018 MW GWh FY18F FY19F
Npower 11,976 26,282 5,103 5,249 Deal Rationale
SSE PLC 14,431 23,979 2,572 2,580 The combination is part of SSE’s transformation strategy to focus on energy generation
EPM & Electricity 2,572 2,580 and network operation for gas and electricity.
Gas Production 939 890 The combination will create an efficient and the 2nd largest independent energy
Gas Storage -57 -54 supplier in the UK serving more than 11.5m customers in the UK
10,64
The Deal allows Innogy to service residential and business clients with tailor-made
Wholesale 3 26,296 -36 -34
Energy Supply 845 801 solutions and gain a competitive position as competition is getting more fierce with
Energy-related 331 314 electricity prices expected to decline
Enterprise -8 -8 SSE is coming under heightened political and regulatory scrutiny as the government
Retail 62 59 intends to cap energy tariff prices in the UK to mitigate its strong power to influence retail
Total 385 365 prices.
growth y/y 1% -5%
Total 1,074 1,019 We assume the transaction to add EUR 2.5bn to Innogy’s EV (see figure x), once it is
Combined 26,406 50,260 6,178 6,268
completed at the end of 2018 and Q1 2019.
EV/EBITDA 7.2x
Added EV 7,289
Stake 34.4%
For our SOTP analysis we included the prospective merger by using EBITDA FY19F
EV to Innogy 2,508 Sources: Team estimates figures of Npower and SSE’s retail and wholesale segment.
CTA Given our assumptions that are based on company guidance, industry figures, analyst
opinions and our expert knowledge, we believe that IGY is currently valued at LTM
EV/EBITDA 7.7x, EV/EBIT 11.8x and P/E 27.9x.
DDM
We mainly base our recommendation on the following investment drivers:
0 15 30 45 60 Favorable dividend payout: We like Innogy’s favorable stable dividend yield of
Datenreihen1 Min-25% 25%-Med 4.9% since its IPO and ambition to maintain a payout ratio at c. 80%. What’s more,
Med-75% 75%-Max Innogy’s dividend yield has been constant above peer levels demonstrating its
Sources: Team estimates
strong shareholder orientation. Infrastructure/utility companies are mostly
Figure 18: Asset turnover comparison recognized for their stable business. Based on its cash & capex intensive business
TAT model, high dividends need to be paid to investors to stay attractive. The average
1.0 global dividend yield was 3.7% in FY17, however, with Innogy being able to largely
outperform this level.
0.8
Average competitive positioning: While it has a strong position in gas and
0.6 electricity network operations G&I (#4), its renewables segment is still not
competitive. But by looking at the current acquisition including the sell of its network
0.4 and re-integration into the RWE group, RWE will become one of the top
2013 2014 2015 2016 2017 renewables players with a 8GW capacity serving >50m customers. This allows it to
Innogy Peer Group capitalize on the accelerating market outlook of 6.4%
Sources: Company data, Team estimates
Unfavourable outlook for Retail: The loss of 262k customers in WE, mainly in
Figure 19: RoA (pre-Tax) & ROFA %
Germany (75k), NL/BL (72k) and UK (115k), despite a slight 20k gain in EE, and
10%
comparison EBIT being down -14.2% (primarily due to unexpected commodity price increases)
8% in Q1 FY18, along with increased competition, only supports our negative mid-term
6% outlook for Retail
4% Oversupply in Europe: Given the marginal 47% utilization rate of the total
2% available capacity in Europe, the pursuit of an ambitious project pipeline to increase
0% capacity may not translate into an increased overall usage
2013 2014 2015 2016 2017
Expected spike in renewable installations: We see LCOE and production cost in
PG ROFA % Innogy ROFA % in renewables declining, compared to fossil fuels, along with a stricter regulatory
PG ROA % Innogy ROA % regime in Europe and increased competition
Sources: Company data, Team estimates
Strong growth in renewables with historic deal ahead: Innogy‘s ambitious
Figure 20: Dividend Yield % comparison project pipeline (adding >1GW) in on-and offshore wind plants and the acquisition
9.0% of E.ON’s capacity (+6GW) leads its overall capacity to jump to >10GW making it
one of the largest renewables player in Europe
7.5%
Strong asset base: Innogy is well-above its peers in terms of Asset turnover (0.9x)
6.0% and ROA (3.5%) stipulating a strong CAPEX efficiency. In fact, Innogy has an
4.5% efficient CAPEX spending given its above peer level ROFA (Return on Fixed
Assets) of 4.5% in FY17 vs. 3.3%. What we also value is that Innogy is well ahead
3.0% of its peers in terms of ROE performance (24% vs. 8.8% in FY17)
13' 14' 15' 16' 17'
Innogy Div Yield % Peer Group Stable margins and operating leverage: Innogy is renowned for its stable and
Sources: Company data, Team estimates predictive margins but also offers attractive ROIC (7%) and ROE (24%) that are in-
Figure 21: ROE % comparison line or above its cost of capital at 7.9% and CoE 10.1%.
30.0%
In-line valuation: Innogy is valued largely in line or even above its peers (see
appendix) with EV/EBITDA being at 7.7x (vs. 6.7x) and EV/EBIT 11.8x (vs. 11.5x)
20.0%
10.0% Based on our analysis, we are certain that the upcoming segment uncertainties
resulting from the deal (re-position & integration), combined with weak segment
outlooks, largely offset the opportunities. Additionally, Innogy faces challenges on
0.0% management levels making us uncomfortable about the ambitious project pipeline.
13' 14' 15' 16' 17'
Innogy ROE % Peer Group We therefore recommend to stay hold until the (RWE/E.ON/IGY) deal is closed by the
Sources: Thomson Reuters, Team analysis end of 2019.
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Equity Research Energy/Utility
8
Equity Research Energy/Utility
Figure 29: DCF estimate Renewables: strong growth and Innogy’s focused segment
in EURm
50,000 10.0% Innogy is one of the leading renewables company in Europe. Our group forecasted the
revenue based on the increase in Gwh of upcoming projects over the next few years
40,000 8.0% and afterwards we kept the growth constant. The strong historic revenue growth, its
30,000 6.0% respective outlook and the high estimated EBIT margin look promising. Even though
Innogy is presenting itself as a renewable company, this sector contributes only around
20,000 4.0%
3.3% to the total revenue.
10,000 2.0%
0 0.0% The DCF is most sensitive to the following factors, the derivations of which are
explained below:
2017
2013
2015
2027F
2019F
2021F
2023F
2025F
2029F
2031F
WACC
Revenue COGS EBIT margin % As a common discount rate, we used the WACC as this metric represent best the
Sources: Company data, Team estimates equity and debt holders interest.
Equity Research 12.06.2018 Energy/Utility
2,000 07% To calculate Cost of Equity, we utilized the traditional CAPM, while we used the
06% unlevered Beta of our trading comparable universe and re-levered it with Innogy ́ s target
1,000 capital structure as we think this is more in-line with how risky similar companies are.
05%
0 04% Terminal Value
-1,000 03% Using the Perpetuity Growth Method, we derived a terminal value which represents
02% 49.76% of the total estimated Enterprise Value, making it a less substantial number
-2,000 compared to a shorter detailed forecast. The implied exit EV/EBITDA multiple after 15
01%
-3,000 00% years by using the PGM is 9.96x.
2013
2015
2017
2019F
2021F
2023F
2025F
2027F
2029F
2031F
DDM Approach
A Dividend Discount Model was used to estimate the value of the dividend payouts
which for a Utility company with strong and constant dividends is a common approach.
D&A Capex Capex % revenue We chose a dividend payout ratio of 80% based on company guidance and we also
Sources: Company data, Team estimates applied a 15 year forecast period for DDM. As a discount factor we used the Cost of
Equity of 10.1% to derive the discounted dividends. The Terminal Value has a weighting
WACC Analysis
of 54%. Our DDM share price is EUR 37.32.
Risk Free Rate 0,532% 20Y Bond
Relevered beta 0,78 Peer Group Sensitivity Analysis
Market Risk Premium 12,32% Additionally, we conducted a sensitivity analysis for our DCF using WACC and growth
Cost of Equity 10,10% rates as variables. For our DDM we used the NI growth rate and payout ratio. From this
Cost of Debt 4,86% Weighted Interest we derived a range of possible share prices from EUR 27.4 to 49.2 for DCF and EUR
Equity ratio 66% 33.8 to 40.6 for DDM.
Debt ratio 34%
Tax rate 25% Relative Valuation
WACC 7,9% Trading Multiples
Figure 31: DCF Model Sensitivity The peer group consists of major utility companies as well as companies that are
focused on renewables. We chose this approach because Innogy is neither a classic
WACC %
utility company nor a company focused solely on renewables. The selected competitors
5.9% 6.9% 7.90% 8.9% 9.9% were then chosen on the basis of their business model, market capitalization and risk
portfolio, leading to a peer group of eight companies. We then applied the industry-
Growth rate %
60.0% 26.2 27.1 28.0 29.0 30.0 Nov-14 Macquarie; Wren House Electrica de Viesgo 100% 2,500 n.a. n.a.
Dec-12 E.ON SE Enerjisa Enerji 50% 4,500 2.97x n.a.
70.0% 30.6 31.6 32.7 33.8 35.0 Aug-12 HERA ACEGAS 100% 552 1.02x 4.76x
80.0% 35.0 36.1 37.3 38.6 40.0 Dec-11 China Three Gorges Energias de Portugal 21% 29,199 2.06x 8.08x
Mar-11 Iberdrola Iberdrola Renovables 20% 12,914 5.76x 8.87x
90.0% 39.3 40.6 42.0 43.4 45.0
Median 2,500 2.06x 6.42x
100.0% 43.7 45.1 46.6 48.3 50.0 Average 7,531 2.55x 6.44x
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Equity Research 12.06.2018 Energy/Utility
Sum-of-the-parts valuation
We used sum-of-the-parts (“SOTP”) analysis to calculate values for Innogy’s equity by
summing the value of its individual business segments to arrive at the total EV. Equity
value was then calculated by deducting net debt and minority interest. In order to
calculate the segment EV we used comparable peer groups.
There are several reasons for that lower implied share price, if using the SOTP approach
to value Innogy. First of all it appeared difficult to find companies that are specialized in
only one of the three segments since utility companies usually operate a diversified
energy portfolio and generally serve more than one of the generation, network and retail
aspect along the supply chain. Second, the LTM EV/EBITDA multiples for the segments
were lower than the multiples from their last fiscal year. Further, forecasted EBITDA for
2019 and which the STOP relies on, is at EUR 3,170m.
10,000
36.81
0
Add: Add: Add: EV Add: EV Total EV Less: Less: Equity Share
G&I Retail Renew- from from Net debt Minority Value Price
ables Segments SSE/Npower Interest
merger
7 Investment Risks
O1: Unsteady weather conditions and their impact on energy generation
Figure 34: Risk matrix capabilities (high likelihood, high impact)
Exposure: The wind level has considerable importance for Innogy, as the utilization of
Operational Risk
Political Risk the company's wind farms greatly depends on them. The wind levels in many countries
Market Risk in Europe were in line with the long-term avg. in 2017, but remained below that at some
important countries for Innogy. So this might impacts key onshore and offshore
generation sites in Innogy’s portfolio.
O1
High
O2 Mitigation: To mitigate wind level dependency, Innogy is farther going to invest more in
Solar energy projects. In early 2017, for instance, Innogy acquired Belectric Solar &
Battery Holding GmbH and concluded a contract with Overland Sun Farming in February
P1 2018.
Probability
Medium
O2: Capital expenditure may fall short of expectations and its impact on earnings
M1 (high likelihood, moderate impact)
Exposure: In 2018-20, Innogy will expand its CAPEX by continuing investing in the
organizations high potential businesses. However, prices paid for acquisitions may prove
to be too high in hindsight. In addition, markets may show a slower performance due to
M2 European saturation. Therefore, projects may be sold under their carrying amount.
Low
Mitigation: On the other hand, expectations may turn out very positively, for instance, if
the targeted CAPEX realize more profitability than originally assumed. Moreover, the
High organization is going to invest in promising business areas as e-mobility and renewable
Low Medium energies.
Impact on valuation: In our base DCF we assumed an CAPEX margin increase to 5.5%
Impact in 2018 with a moderate growth until 2021 and a slight rate decrease in 2022.
Sources: Team estimates
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Equity Research 12.06.2018 Energy/Utility
Figure 35: Risk factors M1: High level of competition in the retail business and its impact on revenue
(moderate likelihood, low impact)
Risk Mitigating Factors Exposure: The increase in competition in the company's core markets has a negative
impact on customer figures and realizable margins. A weak appearance on the market
Operational invest in new high potential can quickly lead to customer losses and a drop in earnings.
Risk segments Mitigation: To mitigate this risk, Innogy has to focus on securing the core business by
enhancing efficiency measures, expanding the core business by widening Innogy’s
Political Risk customer base and providing attractive packages for residential and commercial
customers such as Energy+ products and e-mobility.
Market Risk financial instruments
Business expanding core business M2: Changes in commodity prices can have an influence on business results (low
Risk likelihood, high impact)
Exposure: Commodity price include electricity and gas prices to the generation positions
Sources: Company guidance, team estimates in renewables, in the gas storage business. Such risks may also exist in the retail
business outside of fixed-price products. Commodity price risks in the retail business can
arise for its products, since Innogy can not totally pass on the company´s procurement
Figure 36: Electricity prices costs to its customers.
Mitigation: To mitigate the risk, the commodity price risks of the segments are hedged in
In EUR/kWh accordance with Group directives. Moreover, financial instruments such as options,
futures and swaps are used to hedge commodity positions.
35
Impact on value: Changes in commodity prices could reduce the companies EBIT in
30 2018 by c. EUR 20m.
25
P1: Changes in the regulatory regime, subsidy cuts and revenue cap adjustments
20 may negatively influence Innogy’s sizable regulated business segments
15 Exposure: Renewable energy initiatives are a cornerstone in most European
legislations. Nevertheless, Innogy needs to be aware of possible subsidy cuts and
10 increasingly competitive tender procedures. Likewise, long-term agreements among the
5 company and host countries may prove less reliable than anticipated as political tension
'10 '11 '12 '13 '14 '15 '16 '17 rises within the EU. Furthermore, remaining questions concerning revenue caps and
their specific parameters may adversely affect the networks segment’s profitability.
Ger: B2B prices UK: B2B prices
Ger: B2C prices UK: B2C prices
2%
9%
17%
50%
22%
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Equity Research 12.06.2018 Energy/Utility
8 Appendix
CF-S in EURmn 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Net Income after taxes 592 2,361 2,294 2,139 2,183 2,058 2,007 1,952 1,852
D&A 2,150 1,451 1,640 1,780 2,005 1,805 2,020 1,964 1,922
Deferred Taxes -65 -73 -77 -648 -43 -43 -43 -43 -43
Other non-cash items 674 -346 -1,912 -58 -560 -560 -560 -560 -560
Changes in Working Capital 342 74 210 -215 -177 -357 -27 -23 -17
Cash from Operating
Activities 3,693 3,467 2,155 2,998 3,408 2,903 3,397 3,291 3,154
Capital Expenditures -2,297 -2,059 -2,025 -1,833 -1,835 -2,206 -2,525 -2,455 -2,218
Other Investing Cash Flow
Items -257 -1,626 923 7,051 35 35 35 35 35
Cash from Investing
Activities -2,554 -3,685 -1,102 5,218 -1,800 -2,171 -2,490 -2,420 -2,183
Financing Cash Flow Items 1,305 1,474 -178 -7,199 -64 -64 -64 -64 -64
Total Cash Dividends Paid -1,357 -486 -1,017 -979 -1,328 -737 -759 -775 -798
Issuance (Retirement) of Debt,
Net -952 -639 -398 1,136 220 0 0 0 0
Cash from financing
Activities -1,004 349 -1,593 -7,042 -1,172 -801 -823 -839 -862
Foreign Exchange Effects -3 10 15 -21 9 0 0 0 0
Net Change in Cash 132 141 -525 1,153 445 -70 84 32 109
Net Cash - Beginning Balance 727 859 1,000 475 1,628 2,073 2,003 2,087 2,119
Net Cash - Ending Balance 859 1,000 475 1,628 2,073 2,003 2,087 2,119 2,228
13
Equity Research 12.06.2018 Energy/Utility
8 Appendix
Income Statement in EURmn 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Sales 46,029 43,506 43,456 41,549 41,119 40,105 38,841 37,773 36,969
(-) GOGS -37,320 -35,028 -34,525 -32,515 -32,454 -31,942 -30,935 -30,084 -29,444
Gross Profit 8,709 8,478 8,931 9,034 8,665 8,163 7,906 7,689 7,525
(-) SG&A -3,261 -3,144 -3,102 -3,267 -3,433 -3,021 -2,926 -2,845 -2,785
(-) Other Operating Expenses -1,827 -1,070 -1,201 -1,331 -411 -497 -188 -180 -255
EBITDA 3,621 4,264 4,628 4,436 4,821 4,645 4,792 4,663 4,486
(-) D&A -2,150 -1,451 -1,640 -1,780 -2,005 -1,805 -2,020 -1,964 -1,922
EBIT 1,471 2,813 2,988 2,656 2,816 2,841 2,773 2,699 2,563
(-) Interest exp. -683 -685 -606 -746 -502 -701 -701 -701 -701
(+) Interest income 355 756 772 644 368 629 629 629 629
Net Income before Taxes 1,143 2,884 3,154 2,554 2,682 2,769 2,701 2,627 2,492
(-) Taxes -551 -523 -860 -415 -499 -711 -694 -675 -640
Net Income after Taxes 592 2,361 2,294 2,139 2,183 2,058 2,007 1,952 1,852
8.2 Valuation
DCF Assumptions
60,000 30%
40,000 20%
20,000 10%
0 0%
13 14 15 16 17 18F 19F 20F 21F 22F 23F 24F 25F 26F 27F 28F 29F 30F 31F
14
Equity Research 12.06.2018 Energy/Utility
8 Appendix
Working Capital
Schedule 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F
Current assets
A/R 17,416 17,666 16,913 5,557 5,910 5,564 5,389 5,241 5,129 5,024 4,955 4,886 4,823 4,763 4,708 4,683 4,656 4,631 4,608
Inventories 441 491 379 391 373 385 373 363 355 348 343 338 334 330 326 324 322 321 319
Prepaid Expenses 3 0 1 53 53 21 21 20 20 19 19 19 18 18 18 18 18 18 18
Total curr. assets 17,860 18,157 17,293 6,001 6,336 5,971 5,783 5,624 5,504 5,391 5,317 5,244 5,175 5,111 5,052 5,025 4,996 4,969 4,945
Current liabilities
Accounts Payable 5,357 4,906 4,553 4,302 4,001 4,287 4,152 4,038 3,952 3,871 3,817 3,765 3,716 3,670 3,627 3,608 3,587 3,568 3,551
Accrued Expenses 726 692 726 1,163 1,127 832 806 784 767 752 741 731 722 713 704 701 697 693 689
Total current
liabilities 6,083 5,598 5,279 5,465 5,128 5,119 4,958 4,822 4,719 4,623 4,559 4,496 4,437 4,382 4,331 4,309 4,284 4,261 4,240
Working Capital 11,777 12,559 12,014 536 1,208 851 824 802 785 769 758 748 738 729 720 716 712 709 705
Chg. In NWC 782 782 -545 11,478 672 -357 -27 -23 -17 -16 -11 -10 -10 -9 -8 -4 -4 -4 -3
% of Sales 1.7% 1.8% -1.3% -7.6% 1.6% -0.9% -0.1% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Working Capital
Drivers
DSO 138 148 142 49 52 51 51 51 51 51 51 51 51 51 51 51 51 51 51
DIH 4 5 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
Pre. Exp. & Other% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
DPO 52 51 48 48 45 49 49 49 49 49 49 49 49 49 49 49 49 49 49
Accr. Exp. % sales 2% 2% 2% 3% 3% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%
Other Liab. % sales 20% 25% 22% 15% 15% 17% 15% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%
𝑟𝐸 = 𝑟𝑓 + 𝛽 ∗ (𝐸 𝑅𝑀 − 𝑟𝑓 )
As risk-free rate 𝑟𝑓 we used the German 20-year government bond yield. In order to calculate the market return, we computed the 2-year historical
returns of the DAX 30 as market proxy using weekly data points and annualized it.
We used a comparable company market-based beta, instead of computing a simple-regression with DAX 30 and Innogy’s stock performance. For
this, we unlevered the beta of our peer group according to its market-based capital structure (Market Cap / Net Debt), took the Median unlevered beta
and re-levered it with Innogy’s target capital structure. We assumed that Innogy is currently operating at its target capital structure:
𝐵𝐿 𝑀𝑎𝑟𝑘𝑒𝑡 𝑐𝑎𝑝𝐴𝑔𝑟𝑎𝑛𝑎
𝐵𝑈 = 𝑀𝑎𝑟𝑘𝑒𝑡 𝐶𝑎𝑝 𝐵𝑅𝐿 = 1 + 1 − 𝑇 ∗
𝑁𝑒𝑡 𝐷𝑒𝑏𝑡𝐴𝑔𝑟𝑎𝑛𝑎
(1+ 1−𝑇 ∗
𝑁𝑒𝑡 𝐷𝑒𝑏𝑡
The peer group selection on multiple criteria including industry, size, business description filtering and business model selection. This selection
process leads to a number of 8 peers for Innogy.
- 658
- 95 6
-
Industry Size Business Business
Description Model
15
Equity Research 12.06.2018 Energy/Utility
8 Appendix
Cost of Equity
Risk Free Rate 0.532% 20-Y Gov. Bond
2-Y relvered Beta 0.78 Peer Group
Exp. Market Return 12.9% DAX Index
Cost of Equity 10.1%
Tax rate
An examination of taxes paid in previous years almost equals 2%, we also based our valuation on this rate.
𝐸𝑞𝑢𝑖𝑡𝑦 𝐷𝑒𝑏𝑡
𝑊𝐴𝐶𝐶 = 𝑟𝐸 ∗ + (1 − 𝑇) ∗ 𝑟𝐷 ∗
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
16
Equity Research Energy/Utility
8 Appendix
We finally calculated the Cost of Equity as follows:
WACC Analysis
Risk Free Rate 0,532%
2-Y relevered Beta 0,78
Market Risk Premium 12,32%
Cost of Equity 10,10%
Cost of Debt 4,86%
Equity ratio 66%
Debt ratio 34%
Tax rate 20%
WACC 7,9042%
Growth Rate (g)
Since the European economy is forecasted to grow at a CAGR of 1.4% until 2022 (and inflation at 2.0%), we set our growth assumption at 1.5% for
terminal value calculation.
GDP Germany GDP United Kingdom GDP Western Europe Germany inflation rate
Scenario 1 (m) 2017a 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e TV
EPS 1.58 1.66 1.71 1.74 1.80 1.83 1.87 1.90 1.92 1.95 1.98 2.01 2.04 2.07 2.10 2.14
growth rate % 5.0% 3.0% 2.0% 3.0% 2.0% 2.0% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Dividend payout
(mn) 1.80 1.33 1.37 1.39 1.44 1.46 1.49 1.52 1.54 1.56 1.59 1.61 1.63 1.66 1.68 1.71 20.2
Discount Factor 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1%
Dividend
discounted 1.21 1.13 1.04 0.98 0.91 0.84 0.77 0.71 0.66 0.61 1.61 1.63 1.66 1.68 1.71
DPS 37.32
Market Value 20,732 DPS, EPS, Payout Ratio
5.00
4.00
3.00
2.00
1.00
0.00
13 14 15 16 17 18F 19F 20F 21F 22F 23F 24F 25F 26F 27F 28F 29F 30F 31F 32F
8 Appendix
Retail
Germany 2,485 489 49% 339 7.3x - - 7.3x
UK 168 33 3% 23 7.3x - - 7.3x
NL/BE 1,204 237 24% 164 7.3x - - 7.3x
Eastern Europe 1,024 246 24% 171 6.0x - - 6.0x
Total 4,881 1,005 697 7.0x 7.0x
Renewables
Quasi-regulated 4,124 463 67% 317 13.0x - - 13.0x
Unregulated 1,485 231 33% 158 9.4x - - 9.4x
Total 5,608 694 476 11.8x 11.8x
Total SOTP EV 30,863
Added EV from Npower/SSE merger 2,508
Total EV 33,371
Net Debt 11,105
Minority interest 1,813
Equity Value 20,453
Dil. Shares Outstanding 556
Share Price 36.81
Generation Total
Mcap EV Capacity Output EBIT EBITDA EV/EBITDA
Name Unit 2018 2018 MW GWh FY17 FY18F FY19F FY17 FY18F FY19F FY17 FY18F FY19F
Npower EUR 11,976 26,282 4,366 5,103 5,249 4.4x 5.2x 5.0x
SSE PLC EUR 14,431 23,979 2,695 2,572 2,580 8.3x 10.0x 9.3x
EPM and Electricity
Generation Pound 736 930
Gas Production Pound -201 -57
Gas Storage Pound -37 -36
Wholesale 10,643 26,296 498 403 837
Energy Supply Pound 313 328
Energy-related Services Pound -20 -8
Enterprise Pound 17 62
Retail 310 328 382
Total Pound 808 1,219 1,230 1,167
growth y/y 1% -5%
Total EUR 705 1,064 1,074 1,019
Combined EUR 26,406 50,260 5,430 6,178 6,268 6.3x 7.6x 7.2x
EV/EBITDA Multiple x 7.2x
Added EV to Innogy EUR 7,289
Stake % 34.4%
EV added to Innogy 2,508
18
Equity Research 12.06.2018 Energy/Utility
8 Appendix
19
Equity Research 12.06.2018 Energy/Utility
8 Appendix
Enel SpA AU 108,980 51,916 0.92 11.13 x 10.51 x 9.88 x 9.46 x 6.96 x 6.70 x 6.37 x 6.15 x
Iberdrola SA ES 79,013 40,811 0.78 29.13 x 15.11 x 13.90 x 13.24 x 10.80 x 8.78 x 8.22 x 7.82 x
Electricite de
FR 68,933 30,364 out 12.23 x 11.62 x 10.33 x 9.57 x n/a 4.62 x 4.34 x 4.05 x
France SA
E.ON SE US 32,288 19,944 1.26 7.02 x 11.12 x 10.76 x 10.36 x 6.52 x 6.62 x 6.34 x 6.17 x
SSE PLC GB 22,922 15,082 0.95 10.03 x 11.35 x 11.01 x 10.91 x 6.47 x 7.90 x 7.63 x 7.55 x
Verbund AG GB 6,367 3,414 0.48 16.12 x 13.80 x 10.71 x 9.20 x 7.08 x 7.88 x 6.72 x 6.09 x
EVN AG GB 4,209 3,004 0.39 12.14 x 12.47 x 13.11 x 13.05 x 5.83 x 6.82 x 6.97 x 6.89 x
Engie SA IT 63,141 34,910 0.91 22.40 x 11.44 x 10.71 x 10.14 x n/a 6.61 x 6.32 x 6.11 x
Median 32,288 19,944 0.85 12.23 x 11.46 x 10.76 x 10.36 x 6.96 x 6.82 x 6.72 x 6.17 x
Average 46,325 24,177 0.79 15.20 x 12.10 x 11.32 x 10.81 x 7.26 x 7.04 x 6.69 x 6.44 x
20
Equity Research 12.06.2018 Energy/Utility
Disclosures:
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the
author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or
completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This
information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report
should not be considered to be a recommendation by any individual affiliated with WUTIS – Trading and Investment Society with
regard to this company’s stock.
21
Innogy AG
Equity Research
Recommendation: HOLD
Investment Horizon: 1 Year
Vienna, June 15, 2018
Financial Analysis
Task distribution Strategy
Competitive Positioning Industry DCF & DDM Analysis Risk Analysis
Valuation and Industry
Risk Analysis Deal Rationale Valuation Competitive Positioning
Story guideline Financial Analysis
Conclusion
Price performance
130%
90%
80%
Okt-2016 Jän-2017 Apr-2017 Jul-2017 Okt-2017 Jän-2018 Apr-2018
C.DAX IGY.SE
6 1 3
High dividend yield of 4.5% compared to both,
Innogy’s peers and broader market
5 2
4
Increased risk Digital disruption
exposure Upcoming uncertainties regarding post-merger integration,
4 3 especially in layoffs and brand identity
5
Questionable project pipeline, oversupply in European renewables
combined with tight project schedules leading to increased risk
E.ON / RWE High dividend yield exposure and potential disaster
Deal
6
Possibility of major negative impacts e.g. decreasing wholesale
electricity prices based on increasing competition due to
”Energiewende” legislation
2 Business Description 5
4 Financial Analysis 16
5 Valuation Analysis 19
6 Risk Analysis 25
Onshore
Grid Wind Power
and Infrastructure Retail
EURm
11,000 16%
EBIT & Revenue 10,500 15%
contribution 10,000
14%
9,500
Grid & Infrastructure 13%
9,000
9% 12%
8,500
8,000 11%
3% 2016 2018F 2020F 2022F
Electricity sales Gas sales EBIT margin %
25% EURm
30%
15,000 2.2%
Retail
66% 5,000 1.8%
0 1.6%
2016 2018F 2020F 2022F
Gas Others EBIT margin
Revenue contribution
EURm
1,000 40%
EBIT contribution
750 40%
500 39%
Renewables
250 39%
0 38%
2016 2017 2018F 2019F 2020F 2021F 2022F
Offshore Onshore Solar
Source: Company information, Thomson Reuters, Team analysis
Hydro EBIT margin %
Performance per segment Renewable Power Generation Capacity distribution (in MW)
9%
2%
17%
50%
22%
Renewables
Retail
3.2
1.3
3.4 0.3
31 Dec 2017 COD 2018-2019 2018-2019 2020-23 Post 2023 Total pipeline
in GW Rest of World
CAGR CAGR 13%
3,000 +17.6% ’13-‘17 ’17-’21F
2,500
+8.2% 2% 4% United States
2,000 11%
1,500 14% 27% Asia-Pacific
41%
1,000
500 31% 67%
0 Europe
'13 '14 '15 '16 '17 '18F '19F '20F 35%
Solar Power Wind Power Hydro Power
in GW in EURbn in TWh
3.3 CAGR
700 350
600 +10.2% 300 3.2 +0.8%
CAGR
500 +10.7% 250 3.1 +1.9%
400 200
3.0
300 150
2.9
200 100
100 50 2.8
0 0 2.7
'13 '14 '15 '16 '17 '18F '19F '20F 2011 2012 2013 2014 2015 2016 2020 2025
Solar Power Wind Power (Off- & Onshore) Total Renewables Europe
in EUR/kWh
+ LCOE costs declined by -34.7% in renewables (5Y) and drive up
35 investments
30
+ Strong market growth in renewables and general utilities
25
c. 47% of total capacity
20 - Oversupply in Europe:
used
15
10
- Increasing competition: strong foothold necessary
Ger: B2B prices UK: B2B prices Ger: B2C prices UK: B2C prices
80,000
45 1,600
40 1,400
60,000 35 1,200
30
1,000
40,000 25
800
20
600
15
20,000 400
10
5 200
0 0 0
Grid & Infra Renewables Retail Undisclosed / Other Capacity Renewable Energy (GW) Grid Length (in km)
Source: Bloomberg, Thomson Reuters, Company information
Deal Rationale
E.ON
RWE Shareholders
Shareholders
16.67% 83.33%
100%
12.5% 25%
Innogy SE
Grid & Gundre-
Renewables Retail Emsland Other
Infrastructure mmingen
37.9%
Gas
KELAG Other
storage
Source: Company data, team analysis 1) within the renewables electricity Market 2) within the general electricity market excl . renewables
1.5x 25%
IPO
1.3x 10/2016
20%
1.0x
15%
0.8x
10%
0.5x
0.3x 5%
0.0x 0%
13' 14' 15' 16' 17' F18' E19' E20' E21' 13' 14' 15' 16' 17' F18' E19' E20' E21'
EPS – Div. Yield in % – ROE Gross Profit Margin EBITDA Margin EBIT Margin Net Income Margin
Solid Dividend Payout with yields between 3.8-7.7% Operating leverage between 1.7-2.4x with strong interest coverage
In EUR
5.0 30% 3.5x 10x
25% 3.0x
4.0 9x
2.5x
20%
3.0 8x
2.0x
15%
2.0 1.5x 7x
10%
1.0x
1.0 6x
5% 0.5x
5x
0.0 0% 0.0x
13' 14' 15' 16' 17' F18' E19' E20' E21' 13' 14' 15' 16' 17' F18' E19' E20' E21'
-0.5x 4x
EPS Div Yield % ROE Net Debt/EBITDA Interest Coverage Ratio
Source: Company information, Team analysis
2 Business Description 5
4 Financial Analysis 16
5 Valuation Analysis 19
6 Risk Analysis 25
35% DCF
20%
CCA
CTA
35% DDM
Trading Transaction 0 15 30 45 60
DDM DCF
Comps Comps
Min-25% 25%-Med Med-75% 75%-Max
Equity Bridge
WACC %
In EURm
40,000
32,560 4.9% 5.9% 6.9% 7.9% 8.9% 9.9% 10.9%
1.2% 47.14 40.68 36.24 33.01 30.53 28.58 27.00
Growth rate %
30,000
1.3% 48.92 41.88 37.15 33.74 31.16 29.14 27.51
19,642 1.4% 50.91 43.19 38.12 34.52 31.82 29.73 28.05
20,000
555.56m 1.5% 53.16 44.63 39.17 35.36 32.53 30.36 28.62
1.6% 55.73 46.22 40.31 36.25 33.29 31.02 29.23
10,000
1.7% 58.69 47.99 41.54 37.22 34.10 31.73 29.88
35.4 1.8% 62.15 49.96 42.89 38.25 34.96 32.49 30.57
0
EV Total Minority Cash & Cash Equity Share
debt Interest Equ. Value Price
Source: Company Information, Team analysis - 16 - | Valid until 30/06/2018 © Equity Research / wutis
DCF Analysis
Well positioned in Grid & Infrastructure & Renewables, Retail has to be restructured
1 2 3 4 5 6 7
Segment Revenues and Margin Forecast
In EURm
40,000
-2.8%
35,000
30,000 -2.5%
-1.3%
25,000
-0.5% CAGR CAGR CAGR CAGR
’13-‘17 ’17-‘22 ’22-‘27 ’27-‘32
20,000
10,000
-5.3% -4.4% -3.0% -2.0%
5,000
10.4% 4.5% 5.9% 4.6%
0
13' 14' 15' 16' 17' 18F 19F 20F 21F 22F 23F 24F 25F 26F 27F 28F 29F 30F 31F 32F -2.5% -1.0% -0.5% 4.6%
-5,000
Grid and Infrastructure Retail Renewables Other, Consolidation
Source: Company Information, Team estimates - 17 - | Valid until 30/06/2018 © Equity Research / wutis
Dividend Discount Model
Solid dividend yield at roughly 4.5% expected
1 2 3 4 5 6 7
Key Highlights Dividend 2015 2016 2017 2018F 2019F 2020F 2021F 2022F
y/y growth % -8.0% -34.1% 1.7% -26.3% 3.0% 2.0% 3.0% 2.0%
Dividend Yield 7.1% 4.9% 4.9% 4.2% 4.3% 4.4% 4.4% 4.5%
Eearnings Retention 40.8% 33.3% 33.3% 159.3% -12.2% 25.0% 25.0% 25.0%
g = ROE x Retention 5.0% 27.0% -3.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Payout Ratio 75% 39% 114% 80% 80% 80% 80% 80%
Source: Company Information, Team analysis - 18 - | Valid until 30/06/2018 © Equity Research / wutis
Comparable Company Analysis
Selected peer group median of EV/EBITDA is between 7.0x and 7.3
1 2 3 4 5 6 7
35.0x
EV/EBITDA EV/EBIT
30.0x
20.0x
EV/EBIT
15.0x Median: 12.2x
Industry: Utilities
10.0x Geography: Europe
EV/EBITDA
Median: 7.0 x Market Cap: EUR >3bn
5.0x
According to Innogy’s business
0.0x
model
16.0x EV/EBIT
14.2x Median: 14.2x
14.0x
12.0x
10.5x
10.0x 8.9x
8.1x
8.0x EV/EBITDA
Median: 6.4x
5.8x
6.0x 4.8x
4.1x
EV/Sales
4.0x 3.0x Median: 2.1x
2.1x
2.0x 1.0x 0.9x
n.a. 0.0x 0.0x 0.0x
0.0x
2010 2011 2012 2013 2014 2016 2017
Target
Country
Acquiror
Deal Size
(EURm) 5,348 2,690 4,500 2,500 552 2,036 1,015
2 Business Description 5
4 Financial Analysis 16
5 Valuation Analysis 19
6 Risk Analysis 25
High
Capital expenditure may fall short of
P1
O2 expectations and its impact on
earnings
Probability
Medium
High level of competition in the retail M1
M1
business and its impact on revenue
Impact
Source: Team Analysis
as of May 26 31.0
Risk within
its divisions 29.0
Risk of 27.0
changing
regulatory 25.0
10.7.16 2.27.17 7.19.17 12.6.17
environment
To date, Innogy is valued fairly in line with its current valuation given our investment thesis
as of May 26 31.0
Risk within
its divisions 29.0
Risk of 27.0
changing
regulatory 25.0
10.7.16 2.27.17 7.19.17 12.6.17
environment
To date, Innogy is valued fairly in line with its current valuation given our investment thesis
1 2 3 4 5 6 7
Income Statement in EURmn 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Sales 46,029 43,506 43,456 41,549 41,119 40,105 38,841 37,773 36,969
(-) GOGS -37,320 -35,028 -34,525 -32,515 -32,454 -31,942 -30,935 -30,084 -29,444
Gross Profit 8,709 8,478 8,931 9,034 8,665 8,163 7,906 7,689 7,525
(-) SG&A -3,261 -3,144 -3,102 -3,267 -3,433 -3,021 -2,926 -2,845 -2,785
(-) Other Operating Expenses -1,827 -1,070 -1,201 -1,331 -411 -497 -188 -180 -255
EBITDA 3,621 4,264 4,628 4,436 4,821 4,645 4,792 4,663 4,486
(-) D&A -2,150 -1,451 -1,640 -1,780 -2,005 -1,805 -2,020 -1,964 -1,922
EBIT 1,471 2,813 2,988 2,656 2,816 2,841 2,773 2,699 2,563
(-) Interest exp. -683 -685 -606 -746 -502 -701 -701 -701 -701
(+) Interest income 355 756 772 644 368 629 629 629 629
Net Income before Taxes 1,143 2,884 3,154 2,554 2,682 2,769 2,701 2,627 2,492
(-) Taxes -551 -523 -860 -415 -499 -711 -694 -675 -640
Net Income after Taxes 592 2,361 2,294 2,139 2,183 2,058 2,007 1,952 1,852
Margin Table
COGS % Sales -81.1% -80.5% -79.4% -78.3% -78.9% -79.6% -79.6% -79.6% -79.6%
Gross Profit %
Sales 18.9% 19.5% 20.6% 21.7% 21.1% 20.4% 20.4% 20.4% 20.4%
SG&A % Sales -7.1% -7.2% -7.1% -7.9% -8.3% -7.5% -7.5% -7.5% -7.5%
EBITDA % Sales 7.9% 9.8% 10.6% 10.7% 11.7% 11.6% 12.3% 12.3% 12.1%
D&A % Sales -4.7% -3.3% -3.8% -4.3% -4.9% -4.5% -5.2% -5.2% -5.2%
EBIT % Sales 3.2% 6.5% 6.9% 6.4% 6.8% 7.1% 7.1% 7.1% 6.9%
Net Income before taxes % Sales 0.8% 1.7% 1.8% 1.5% 0.9% 1.6% 1.6% 1.7% 1.7%
Taxe Rate % -48.2% -18.1% -27.3% -16.2% -18.6% -25.7% -25.7% -25.7% -25.7%
Net Income after taxes % Sales 1.3% 5.4% 5.3% 5.1% 5.3% 5.1% 5.2% 5.2% 5.0%
1 2 3 4 5 6 7
Balance Sheet in EURmn 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Assets 54,813 56,504 57,972 46,890 46,814 45,529 45,930 46,293 46,578
Current assets 20,386 20,855 19,737 10,651 10,312 8,626 8,522 8,394 8,383
Cash & Cash Equivalents 2,526 2,388 2,444 4,067 3,324 2,003 2,087 2,119 2,228
Accounts Receivable 17,416 17,666 16,913 5,557 5,910 5,564 5,389 5,241 5,129
Inventory 441 491 379 391 373 385 373 363 355
Prepaid
Expenses 3 0 1 53 53 21 21 20 20
Other current assets 0 310 0 583 652 652 652 652 652
Non-current assets 34,427 35,649 38,235 36,239 36,502 36,903 37,408 37,899 38,195
PP&E 16,980 17,309 18,308 17,954 18,361 18,762 19,267 19,758 20,054
Goodwill 10,343 10,501 10,974 10,658 10,191 10,191 10,191 10,191 10,191
Intangibles 1,255 1,194 1,204 1,051 1,156 1,156 1,156 1,156 1,156
Long Term Investments 2,882 2,889 2,692 2,959 3,053 3,053 3,053 3,053 3,053
Notes receivables 1,179 1,495 2,242 479 473 473 473 473 473
Other Long Term Assets 1,788 2,261 2,815 3,138 3,268 3,268 3,268 3,268 3,268
Equity & Liabilities 54,813 56,504 57,972 46,890 46,814 45,529 45,930 46,293 46,578
Total Equity 15,654 16,937 16,649 8,931 9,439 10,759 12,007 13,184 14,238
Common Stock n.a. n.a. n.a. 1,111 1,111 1,111 1,111 1,111 1,111
Unrealized Gains/Losses n.a. n.a. n.a. 85 85 85 85 85 85
Other Equity 15,654 16,937 16,649 -766 -618 -618 -618 -618 -618
Retained Earnings n.a. n.a. n.a. 8,501 8,861 10,181 11,429 12,606 13,660
Current liabilities 15,565 16,792 15,812 11,781 12,649 11,549 12,037 11,230 12,197
Accounts Payable 5,357 4,906 4,553 4,302 4,001 4,287 4,152 4,038 3,952
Accrued Expenses 726 692 726 1,163 1,127 832 806 784 767
Current Port. of LT Debt/Capital Leases 171 113 1,019 110 1,218 127 776 105 1,174
Other Current liabilities 9,311 11,081 9,514 6,206 6,303 6,303 6,303 6,303 6,303
Non-current liabilities 23,594 22,775 25,511 26,178 24,726 23,220 21,886 21,880 20,144
Long term debt 13,633 215 11,875 11,717 13,211 13,211 13,211 13,211 13,211
Deferred Income Tax 820 772 904 521 542 542 542 542 542
Minority Interest 1,335 1,461 1,811 1,736 1,813 1,813 1,813 1,813 1,813
Other liabilities 7,806 20,327 10,921 12,204 9,160 7,654 6,320 6,314 4,578
Total liabilities 39,159 39,567 41,323 37,959 37,375 34,770 33,923 33,109 32,340
1 2 3 4 5 6 7
CF-S in EURm 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Net Income after taxes 592 2,361 2,294 2,139 2,183 2,058 2,007 1,952 1,852
D&A 2,150 1,451 1,640 1,780 2,005 1,805 2,020 1,964 1,922
Deferred Taxes -65 -73 -77 -648 -43 -43 -43 -43 -43
Other non-cash items 674 -346 -1,912 -58 -560 -560 -560 -560 -560
Changes in Working Capital 342 74 210 -215 -177 -357 -27 -23 -17
Cash from Operating Activities 3,693 3,467 2,155 2,998 3,408 2,903 3,397 3,291 3,154
Capital Expenditures -2,297 -2,059 -2,025 -1,833 -1,835 -2,206 -2,525 -2,455 -2,218
Other Investing Cash Flow Items -257 -1,626 923 7,051 35 35 35 35 35
Cash from Investing Activities -2,554 -3,685 -1,102 5,218 -1,800 -2,171 -2,490 -2,420 -2,183
Financing Cash Flow Items 1,305 1,474 -178 -7,199 -64 -64 -64 -64 -64
Total Cash Dividends Paid -1,357 -486 -1,017 -979 -1,328 -737 -759 -775 -798
Issuance (Retirement) of Debt, Net -952 -639 -398 1,136 220 0 0 0 0
Cash from financing Activities -1,004 349 -1,593 -7,042 -1,172 -801 -823 -839 -862
Foreign Exchange Effects -3 10 15 -21 9 0 0 0 0
Net Change in Cash 132 141 -525 1,153 445 -70 84 32 109
Net Cash - Beginning Balance 727 859 1,000 475 1,628 2,073 2,003 2,087 2,119
Net Cash - Ending Balance 859 1,000 475 1,628 2,073 2,003 2,087 2,119 2,228
DCF - Base Case 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F TV
Total Revenue 46,029 43,506 43,456 41,549 41,119 40,105 38,841 37,773 36,969 36,214 35,712 35,221 34,761 34,331 33,931 33,753 33,559 33,380 33,216
Retail 39,136 35,819 35,068 32,554 31,492 30,177 28,668 27,378 26,283 25,232 24,475 23,740 23,028 22,337 21,667 21,234 20,809 20,393 19,985
G&I 12,892 13,044 13,225 14,040 14,215 14,358 14,504 14,651 14,801 14,953 15,107 15,263 15,422 15,583 15,746 15,912 16,081 16,252 16,425
Renewables 916 825 1,158 1,097 1,362 1,446 1,491 1,515 1,617 1,726 1,844 1,947 2,058 2,175 2,300 2,433 2,536 2,645 2,759
(-) COGS 37,320 35,028 34,525 32,515 32,454 31,942 30,935 30,084 29,444 28,843 28,442 28,052 27,685 27,343 27,024 26,883 26,728 26,585 26,455
Gross Profit 8,709 8,478 8,931 9,034 8,665 8,163 7,906 7,689 7,525 7,371 7,269 7,169 7,076 6,988 6,907 6,871 6,831 6,794 6,761
(-) SG&A 3,261 3,144 3,102 3,267 3,433 3,122 3,023 2,940 2,877 2,819 2,780 2,741 2,706 2,672 2,641 2,627 2,612 2,598 2,585
(-) Other opex 2,515 1,688 1,879 1,767 1,915 1,769 1,713 1,666 1,631 1,598 1,575 1,554 1,533 1,514 1,497 1,489 1,480 1,472 1,465
EBITDA 2,933 3,646 3,950 4,000 3,317 3,273 3,170 3,082 3,017 2,955 2,914 2,874 2,837 2,802 2,769 2,754 2,739 2,724 2,711
(-) D&A 1,343 1,297 1,365 1,455 1,467 1,365 1,322 1,286 1,258 1,233 1,215 1,199 1,183 1,168 1,155 1,149 1,142 1,136 1,131
EBIT 1,471 2,813 2,988 2,656 2,816 2,841 2,773 2,699 2,563 2,585 2,601 2,623 2,647 2,674 2,703 2,727 2,754 2,782 2,811
Taxes 551 523 860 415 499 671 578 573 512 535 553 545 550 553 563 569 573 579 585
(+) D&A 1,343 1,297 1,365 1,455 1,467 1,365 1,322 1,286 1,258 1,233 1,215 1,199 1,183 1,168 1,155 1,149 1,142 1,136 1,131
(-) Chg. In NWC 782 782 (545) (11,478 672 (357) (27) (23) (17) (16) (11) (10) (10) (9) (8) (4) (4) (4) (3)
(-) CAPEX 2,297 2,059 2,025 1,833 1,835 2,206 2,525 2,455 2,218 1,992 1,964 1,937 1,912 1,888 1,866 1,688 1,678 1,669 1,661
Unlevered FCF (9) 900 2,288 13,666 1,815 2,125 1,717 1,658 1,773 1,957 1,844 1,877 1,898 1,924 1,944 2,128 2,152 2,174 2,197 35,192
WACC 7.9%
Growth Rate 1.5%
Total PV of FCF 16,651
PV of TV 16,446 WACC
% of EV 50% 5.9% 6.9% 7.9% 8.9% 9.9%
Enterprise Value 33,097 1.00% 57.3 43.8 34.0 26.7 20.9
Less: Net Debt 11,105 1.25% 59.9 45.4 35.1 27.4 21.4
Growth %
Less: Minor. Int. 1813 1.50% 62.8 47.2 36.3 28.3 22.0
Total Equ. Value 20,179 1.75% 66.1 49.2 37.6 29.1 22.7
Dilu. Shares Out. 556 2.00% 69.8 51.4 39.0 30.1 23.3
Target Price 36.32
Net Sales by
Segment: 1. According to growth in
Grid and Infrastructure 14.040 14.215 14,358 14,504 14,651 14,801 14,953 15,107 15,263 15,422 15,583 15.746 electricity(0,8%) and gas
growth % 6,2% 1,2% 2,9% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1,0% 1 consumption (3%)
Retail 32.554 31.492 30,177 28,668 27,378 26,283 25,232 24,475 23,740 23,028 22,337 21,667
2. Forecast based on customer
growth % -7,2% -3,3% -4,2% -4.2% -5.0% -4.5% -4.0% -4.0% -3.0% -3.0% -3.0% -3.0% -3.0% 2
development, competitive
Renewables 1.097 1.362 1,446 1,491 1,515 1,617 1,726 1,844 1,947 2,058 2,175 2,300
growth % -5,3% 24,2% 19,8% 6.1% 3.2% 1.6% 6.7% 6.8% 6.8% 5.6% 5.7% 5.7% 5.7%
business
3
Other, Consolidation -4.080 -3.930 -3,856 -3,802 -3,752 -3,712 -3,677 -3,694 -3,710 -3,727 -3,744 -3,762 3. Based on the planned
growth % 5,1% -3,7% -0,6% -1.9% -1.4% -1.3% -1.0% -0.9% 0.5% 0.4% 0.5% 0.5% 1 0.5%
4 investment projects
Tax receipt -2.062 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020
Total Sales 41.549 41.119 40,105 38,841 37,773 36,969 36,214 35,712 35,221 34,761 34,331 33,931 4. Average growth of all
growth % -4,4% -1,0% -2.5% -3.2% -2.7% -2.1% -2.0% -1.4% -1.4% -1.3% -1.2% -1.2% segments
EBIT Grid & Infrastructure 1.709 1.944 1,925 1,905 1,886 1,896 1,905 1,905 1,915 1,924 1,934 1,944
% sales 13,3% 15,1% 14,4% 13.7% 13.7% 13.7% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 5. Heavy competition and
EBIT Retail 844 800 775 711 647 473 454 441 427 415 402 390 5 therefore decreasing margins
% sales 2,2% 2,0% 2,1% 2.0% 1.9% 1.9% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8%
EBIT Renewables 359 355 377 389 395 422 450 481 508 536 567 599 5 6. Assuming constant D&A of
% sales 39,2% 38,8% 43,7% 26.1% 26.1% 26.1% 26.1% 26.1% 26.1% 26.1% 26.1% 26.1% 26.1% sales of 2017
EBIT Other, Consolidation -256 -283 -236 -232 -229 -227 -225 -226 -227 -228 -229 -230 5
% sales 5,9% 6,5% 6,1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 7. Maintaining and expanding
EBIT 2.656 2.816 2,841 2,773 2,699 2,563 2,585 2,601 2,623 2,647 2,674 2,703 Grid & Infrastructure and e-
% sales 6,4% 6,8% 6,7% 7.1% 7.1% 7.1% 6.9% 7.1% 7.3% 7.4% 7.6% 7.8% 8.0% mobility
Taxes 415 499 671 578 573 512 535 553 545 550 553 563
Tax Rate % 15,6% 17,7% 20,7% 23.6% 20.8% 21.2% 20.0% 20.7% 21.3% 20.8% 20.8% 20.7% 20.8%
NOPAT 2.241 2.317 2,169 2,195 2,126 2,052 2,050 2,047 2,077 2,097 2,121 2,140
(+) Depreciation &
Amortization: 1.780 2.005 1,805 2,020 1,964 1,922 1,883 1,750 1,726 1,703 1,682 1,663
% sales 4,3% 4,9% 4,3% 4.5% 5.2% 5.2% 5.2% 5.2% 4.9% 4.9% 4.9% 4.9% 4.9%
(-) Net Change in WC -11.478 672 -357 -27 -23 -17 -16 -11 -10 -10 -9 -8
6
% sales 1,3% 2,9% 17,3% 17.3% 17.3% 17.3% 17.3% 17.3% 17.3% 17.3% 17.3% 17.3% 17.3%
(-) CAPEX 1.833 1.835 2,206 2,525 2,455 2,218 1,992 1,964 1,937 1,912 1,888 1,866
% sales 4,4% 4,5% 4,5% 5.5% 6.5% 6.5% 6.0% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Unlevered FCF 13.666 1.815 2,125 1,717 1,658 1,773 1,957 1,844 1,877 1,898 1,924 1,944
Growth Rate: 497,4% -86,7% 17.1% -19.2% -3.4% 7.0% 10.4% -5.8% 1.8% 1.2% 1.3% 1.1% 7
Sum pf PV of FCF 16,651 (-)Net debt 11.105 Implied Equity Value 20,179
Dil. Shares Outstanding 556
PV of TV 16,446 (-)preferred stock 0
Implied Share Price 36.32
Enterprise Value 33,097 (-)non controlling interest 1.813 Current Share Price € 35.97
TV % EV 49.69% Return Potential % +1%
Wind - Onshore 2.1 1.8 1.9 2.0 2.2 2.3 2.5 2.6 2.8 2.9 3.0 3.2 3.3 3.5 3.6 3.7 3.8
growth % 26% -12% 5.8% 6.4% 6.4% 6.4% 6.4% 6.4% 5.0% 5.0% 5.0% 5.0% 5.0% 3.5% 3.5% 3.5% 3.5%
% Share for Wind –
Onshore 56% 54% 49.3% 50.8% 53.2% 53.0% 52.9% 52.7% 52.4% 52.0% 51.7% 51.3% 50.9% 50.6% 50.2% 49.8% 49.4%
Offshore
Revenue/Gwh offshore 80.1 122.8 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2
% margin on Total Rev. /
27% 30% 29.4% 28.9% 29.5% 29.3% 29.2% 29.4% 29.3% 29.3% 29.3% 29.3% 29.3% 29.3% 29.3% 29.3% 29.3%
GwH
Wind - offshore 1.0 1.0 1.1 1.2 1.3 1.5 1.6 1.8 1.9 2.1 2.2 2.4 2.6 2.7 2.9 3.1 3.3
growth % 4% 2% 10.4% 9.4% 9.4% 9.4% 9.4% 9.4% 8.0% 8.0% 8.0% 8.0% 8.0% 6.0% 6.0% 6.0% 6.0%
% Share for Wind –
Offshore 27% 30% 28.8% 30.5% 29.5% 29.2% 29.7% 29.6% 29.7% 29.5% 29.5% 29.6% 29.6% 29.6% 29.6% 29.6% 29.6%
Hydro
Revenue/Gwh Hydro 47.4 62.0 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4
% margin on Total Rev. /
GwH 16% 15% 15.8% 15.7% 15.6% 15.7% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6%
Hydro 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6
growth % 19% -13% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
% Share for Hydro 16% 15% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8%
Solar
Revenue/Gwh Solar 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62
Solar 0.034 0.035 0.037 0.040 0.043 0.045 0.048 0.049 0.051 0.053 0.055 0.057 0.058 0.059 0.061 0.062
growth % 5.0% 5.0% 7.0% 9.0% 5.0% 5.0% 3.5% 3.5% 3.5% 3.5% 3.5% 2.5% 2.5% 2.5% 2.5%
% Share for Hydro 1% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Gas sales
Grid &
Infrastructure 924 959 988 1,017 1,048 1,079 1,112 1,145 1,179 1,215 1,251 1,289 1,327 1,367 1,408 1,451 1,494
growth 3.8% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Retail
Electricity sales average last 2 years redirection slight increase
Germany 12,528 13,565 13,502 13,440 13,378 13,316 13,254 13,294 13,334 13,374 13,414 13,454 13,562 13,670 13,780 13,890 14,001
UK 6,154 5,539 5,385 5,236 5,091 4,950 4,813 4,765 4,717 4,670 4,623 4,577 4,586 4,595 4,604 4,614 4,623
Netherlands/Belgium 1,044 968 934 901 869 838 808 797 786 775 764 753 752 750 749 747 746
Eastern Europe 1,955 2,042 2,084 2,127 2,170 2,215 2,261 2,317 2,375 2,434 2,495 2,558 2,634 2,713 2,795 2,879 2,965
Total Electricity 21,681 22,114 21,905 21,703 21,508 21,319 21,136 21,173 21,212 21,253 21,296 21,342 21,534 21,729 21,928 22,129 22,335
growth%
Gas sales
Germany 3620 3144 2715 2345 2025 1749 1511 1492 1475 1457 1439 1422 1426 1431 1435 1439 1444
UK 1853 1550 1517 1484 1452 1421 1391 1377 1363 1349 1336 1322 1329 1336 1342 1349 1356
Netherlands/Belgium 2484 2134 2048 1966 1887 1812 1739 1696 1653 1612 1572 1532 1525 1517 1509 1502 1494
Eastern Europe 1506 1346 1320 1294 1268 1244 1219 1217 1214 1212 1209 1207 1219 1231 1244 1256 1269
Total Gas 9463 8174 7600 7089 6633 6225 5859 5781 5705 5630 5556 5484 5499 5515 5530 5546 5562
Electricity & Gas 31,144 30,288 29,505 28,793 28,141 27,544 26,995 26,954 26,917 26,883 26,852 26,826 27,033 27,244 27,458 27,676 27,897
Others (e.g. photovoltaic) 1,802 1,937 1,694 1,653 1,615 1,581 1,550 1,547 1,545 1,543 1,541 1,540 1,552 1,564 1,576 1,589 1,601
margin % 5.47% 6.01% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74%
Total Retail 32,946 32,225 31,199 30,445 29,757 29,125 28,545 28,501 28,462 28,426 28,394 28,366 28,585 28,808 29,034 29,264 29,498
growth% -2.2% -3.2% -2.4% -2.3% -2.1% -2.0% -0.2% -0.1% -0.1% -0.1% -0.1% 0.8% 0.8% 0.8% 0.8% 0.8%
Working Capital
Schedule 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F
Current assets
A/R 17,416 17,666 16,913 5,557 5,910 5,564 5,389 5,241 5,129 5,024 4,955 4,886 4,823 4,763 4,708 4,683 4,656 4,631 4,608
Inventories 441 491 379 391 373 385 373 363 355 348 343 338 334 330 326 324 322 321 319
Prepaid Expenses 3 0 1 53 53 21 21 20 20 19 19 19 18 18 18 18 18 18 18
Total curr. assets 17,860 18,157 17,293 6,001 6,336 5,971 5,783 5,624 5,504 5,391 5,317 5,244 5,175 5,111 5,052 5,025 4,996 4,969 4,945
Current liabilities
Accounts Payable 5,357 4,906 4,553 4,302 4,001 4,287 4,152 4,038 3,952 3,871 3,817 3,765 3,716 3,670 3,627 3,608 3,587 3,568 3,551
Accrued Expenses 726 692 726 1,163 1,127 832 806 784 767 752 741 731 722 713 704 701 697 693 689
Total current liabilities 6,083 5,598 5,279 5,465 5,128 5,119 4,958 4,822 4,719 4,623 4,559 4,496 4,437 4,382 4,331 4,309 4,284 4,261 4,240
Working Capital 11,777 12,559 12,014 536 1,208 851 824 802 785 769 758 748 738 729 720 716 712 709 705
Chg. In NWC 782 782 -545 11,478 672 -357 -27 -23 -17 -16 -11 -10 -10 -9 -8 -4 -4 -4 -3
% of Sales 1.7% 1.8% -1.3% -7.6% 1.6% -0.9% -0.1% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Working Capital
Drivers
DSO 138 148 142 49 52 51 51 51 51 51 51 51 51 51 51 51 51 51 51
DIH 4 5 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
Pre. Exp. & Other% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
DPO 52 51 48 48 45 49 49 49 49 49 49 49 49 49 49 49 49 49 49
Accr. Exp. % sales 2% 2% 2% 3% 3% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%
Other Liab. % sales 20% 25% 22% 15% 15% 17% 15% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%
Cost of Equity
Risk Free Rate 0.532% 20-Y Gov. Bond
2-Y relvered Beta 0.78 Peer Group
Exp. Market Return 12.9% DAX Index
Cost of Equity 10.1%
Cost of Equity
Risk Free Rate 0.532% 20Y Bond
Dividend Growth Growth Growth Share Re-levered beta 0.78 Peer Group
Scenario 2017 (1-3) (4-6) (7-10) g (TV) Price Market Risk Premium 12.32%
growth rate 1.80 5.0% 3.0% 2.0% 1.5% 37.32 Cost of Equity 10.10%
Scenario 1 (m) 2017a 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e TV
EPS 1.58 1.66 1.71 1.74 1.80 1.83 1.87 1.90 1.92 1.95 1.98 2.01 2.04 2.07 2.10 2.14
growth rate % 5.0% 3.0% 2.0% 3.0% 2.0% 2.0% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Dividend payout
(mn) 1.80 1.33 1.37 1.39 1.44 1.46 1.49 1.52 1.54 1.56 1.59 1.61 1.63 1.66 1.68 1.71 20.2
Discount Factor 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1%
Dividend
discounted 1.21 1.13 1.04 0.98 0.91 0.84 0.77 0.71 0.66 0.61 1.61 1.63 1.66 1.68 1.71
DPS 37.32
Market Value 20,732
RAB Used
EV EBITDA Share EBITDA EV/EBITDA RAB EV/EBITDA
in EURmn 2020F 2017 % 2019F 2019F in EURbn Premium % 2018F
G&I
Germany 15,160 2,051 71% 1,425 7.6x 9.0 40% 10.6x
Eastern Europe 5,214 823 29% 572 7.6x 4.5 20% 9.1x
Total 20,374 2,874 1,997 7.6x 13.5 10.2x
Retail
Germany 2,485 489 49% 339 7.3x - - 7.3x
UK 168 33 3% 23 7.3x - - 7.3x
NL/BE 1,204 237 24% 164 7.3x - - 7.3x
Eastern Europe 1,024 246 24% 171 6.0x - - 6.0x
Total 4,881 1,005 697 7.0x 7.0x
Renewables
Quasi-regulated 4,124 463 67% 317 13.0x - - 13.0x
Unregulated 1,485 231 33% 158 9.4x - - 9.4x
Total 5,608 694 476 11.8x 11.8x
Total SOTP EV 30,863
Added EV from Npower/SSE merger 2,508
Total EV 33,371
Net Debt 11,105
Minority interest 1,813
Equity Value 20,453
Dil. Shares Outstanding 556
Share Price 36.81
Generation Total
Mcap EV Capacity Output EBIT EBITDA EV/EBITDA
Name Unit 2018 2018 MW GWh FY17 FY18F FY19F FY17 FY18F FY19F FY17 FY18F FY19F
Npower EUR 11,976 26,282 4,366 5,103 5,249 4.4x 5.2x 5.0x
SSE PLC EUR 14,431 23,979 2,695 2,572 2,580 8.3x 10.0x 9.3x
Revenue CAGR EBITDA CAGR EBIT CAGR Div. Yield % ROA % ROE % Net Debt/EBITDA
Company Name Country 15-'17 15-'17 15-'17 2017 2017 2017 2017
Innogy SE GER 2.24% 7.84% 7.25% 4.45% 3.50% 8.00% 3.84
European Peers
EDF FR 1.27% -7.38% -11.91% 3.97% 1.20% 6.90% 1.95x
Enel SpA IT 4.80% 8.13% 8.88% 4.99% 4.60% 11.70% 2.62x
Engie SA FR 1.38% -3.13% -4.47% 5.02% 1.00% 2.80% 2.48x
E.ON GER -0.85% -30.39% -35.28% 3.27% 7.70% 150.50% 3.22x
SSE PLC UK -11.87% 19.42% 18.63% 6.66% 7.70% 14.30% 3.43x
Iberdola UK 4.84% 7.99% 2.08% 5.12% 1.90% 8.20% 4.28x
Verbund AG AUT 4.10% 5.25% 7.19% 1.50% 3.30% 6.40% 2.26x
EVN AG AUT 4.71% 16.18% 32.58% 2.75% 5.00% 9.50% 1.57x
Min. -11.87% -30.39% -35.28% 1.50% 1.00% 2.80% 1.57x
25% percentile 0.74% -4.20% -6.33% 3.14% 1.73% 6.78% 2.18x
Median 2.74% 6.62% 4.63% 4.48% 3.95% 8.85% 2.55x
Mean 1.05% 2.01% 2.21% 4.16% 4.05% 26.29% 2.73x
75% percentile 4.73% 10.14% 11.32% 5.04% 5.68% 12.35% 3.27x
Max. 4.84% 19.42% 32.58% 6.66% 7.70% 150.50% 4.28x
EURm Enterprise
Country Equity Value Beta EV / EBIT EV / EBITDA
Company Value
31.12.2017 31.12.2017 2017 2018F 2019F 2020F 2017 2018F 2019F 2020F
Innogy SE GB 31,071 18,153 0.63 16.62 x 11.46 x 11.44 x 11.31 x 7.17 x 7.42 x 7.31 x 7.17 x
Enel SpA AU 108,980 51,916 0.92 11.13 x 10.51 x 9.88 x 9.46 x 6.96 x 6.70 x 6.37 x 6.15 x
Iberdrola SA ES 79,013 40,811 0.78 29.13 x 15.11 x 13.90 x 13.24 x 10.80 x 8.78 x 8.22 x 7.82 x
Electricite de
FR 68,933 30,364 out 12.23 x 11.62 x 10.33 x 9.57 x n/a 4.62 x 4.34 x 4.05 x
France SA
E.ON SE US 32,288 19,944 1.26 7.02 x 11.12 x 10.76 x 10.36 x 6.52 x 6.62 x 6.34 x 6.17 x
SSE PLC GB 22,922 15,082 0.95 10.03 x 11.35 x 11.01 x 10.91 x 6.47 x 7.90 x 7.63 x 7.55 x
Verbund AG GB 6,367 3,414 0.48 16.12 x 13.80 x 10.71 x 9.20 x 7.08 x 7.88 x 6.72 x 6.09 x
EVN AG GB 4,209 3,004 0.39 12.14 x 12.47 x 13.11 x 13.05 x 5.83 x 6.82 x 6.97 x 6.89 x
Engie SA IT 63,141 34,910 0.91 22.40 x 11.44 x 10.71 x 10.14 x n/a 6.61 x 6.32 x 6.11 x
Median 32,288 19,944 0.85 12.23 x 11.46 x 10.76 x 10.36 x 6.96 x 6.82 x 6.72 x 6.17 x
Average 46,325 24,177 0.79 15.20 x 12.10 x 11.32 x 10.81 x 7.26 x 7.04 x 6.69 x 6.44 x
Revenue CAGR EBITDA CAGR EBIT CAGR Div. Yield ROA ROE Net Debt/EBITDA
Company Name Country 15-'17 15-'17 15-'17 2017 2017 2017 2017
Innogy SE GER 2.24% 7.84% 7.25% 4.45% 3.50% 8.00% 3.84
European Peers
EDF FR 1.27% -7.38% -11.91% 3.97% 1.20% 6.90% 1.95x
Enel SpA IT 4.80% 8.13% 8.88% 4.99% 4.60% 11.70% 2.62x
Engie SA FR 1.38% -3.13% -4.47% 5.02% 1.00% 2.80% 2.48x
E.ON GER -0.85% -30.39% -35.28% 3.27% 7.70% 150.50% 3.22x
SSE PLC UK -11.87% 19.42% 18.63% 6.66% 7.70% 14.30% 3.43x
Iberdola UK 4.84% 7.99% 2.08% 5.12% 1.90% 8.20% 4.28x
Verbund AG AUT 4.10% 5.25% 7.19% 1.50% 3.30% 6.40% 2.26x
EVN AG AUT 4.71% 16.18% 32.58% 2.75% 5.00% 9.50% 1.57x
Min. -11.87% -30.39% -35.28% 1.50% 1.00% 2.80% 1.57x
25% percentile 0.74% -4.20% -6.33% 3.14% 1.73% 6.78% 2.18x
Median 2.74% 6.62% 4.63% 4.48% 3.95% 8.85% 2.55x
Mean 1.05% 2.01% 2.21% 4.16% 4.05% 26.29% 2.73x
75% percentile 4.73% 10.14% 11.32% 5.04% 5.68% 12.35% 3.27x
Max. 4.84% 19.42% 32.58% 6.66% 7.70% 150.50% 4.28x
May 10th 2018: innogy Boards Submit Reasoned Statement Concerning E.ON/RWE Transaction
The executive board and the supervisory board do not give a recommendation to innogy’s shareholders. Both believe that the offer is fair in absolute terms but a definitive
assessment of the relative value is currently not possible. Uwe Tigges, CEO of Innogy SE is “extremely concerned that the job cuts planned by E.On will be unilaterally
pursued to the disadvantage of the Innogy employees.” Other questions concerning the integration process and innogy SE’s brand value are among the most fiercely
debated.
April 27th 2018: Takeover Offer for innogy SE by E.ON Verwaltungs SE Published
E.ON Verwaltungs SE published its cash offer for innogy’s no-par value bearer shares at EUR36.76. In addition, innogy’s shareholders will receive dividend payments for
fiscal year 2018, which are expected to amount to EUR1.64 per share.
April 24th 2018: Four Supervisory Board Members Elected at Annual General Meeting
Erhard Schipporeit, who had previously been appointed to the supervisory board by the Essen district court, was elected as shareholder representative and chairman of
the board. Monika Krebber, Markus Sterzl and Jürgen Wefers will act as employee representatives.
April 3rd 2018: GBP1.5B Offshore Wind Farm “Galloper” Switches on all Turbines
The project was completed within budget and ahead of schedule since it began in November 2016. All 56 6.3MW turbines are now generating enough renewable
electricity to power 380,000 homes. The project is expected to run for the next 20 years.
March 26th 2018: innogy takes 300MW share in “Dublin Array” Offshore Wind Farm Project
The German company’s Irish subsidiary established a strategic partnership with Saorgus Energy to develop a 600MW offshore wind project in Ireland. The next planning
phase will be led by innogy.
March 15th 2018: innogy acquires Italian onshore wind park “Deliceto”
Following this acquisition innogy Italia now has a total wind energy capacity of 90MW. Innogy and the Italian seller Imprese e Sviluppo have agreed to keep the transaction
price confidential.
February 15th 2018: innogy Acquires Croatian Gas Grid and Retail Company Montcogim-Plinara
Moncogim-Plinara’s reported 2016 revenues of EUR11.4M, supplying 11,000 customers. As a result of the acquisition Innogy now becomes the third-largest gas utility
company in Croatia. The purchase price was kept confidential.
January 1st 2018: Project Pipline Totals 5,000MW of Future Renewable Energy Capacity
Growth projects include the 860MW Triton Knoll offshore wind project in the UK, 400MW of wind energy projects in Thuringia, Germany and an onshore wind pipeline in
the US totaling 2,000MW. These and other projects are in various stages of development. Additionally, innogy will continue to invest in photovoltaics as a key area for
growth.
December 22nd 2018: City of Hürth signs Concession for the Supply of Energy until 2037
Energieversorung Hürth GmbH won the tender procedure and will lease the concession rights to Westnetz, a subsidiary of innogy SE. innogy also holds a 24.9% stake in
Energieversorgung Hürth GmbH.
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