$Industry$ SECTOR

Italian Research
Company Update
KINEXIA
Milan, July 15, 2014
OUTPERFORM
Price (Eu):
2.26
Target Price (Eu):
2.70
SECTOR: Utilities
Fabrizio Barini
+39-02-77115.319
e-mail: [email protected]
+39-02-77115.252
Rita Mombello
e-mail: [email protected]
A Rising Star in the Renewable Energy Galaxy


Continual modernisation. Kinexia is a leading player in the Italian renewable energy sector,
one of the businesses with the highest potential in the country. The company is active in
three main areas: renewable energy, heating and, more recently, environment
management (especially waste management). This last business has become a major
focus for Kinexia since it signed a deal to buy 32.7% of Waste Italia last month. Kinexia will
now own 86.83% of Waste Italia, a company with a solid base of over 3,000 clients, 9 waste
selection centers, 7 waste collection points, 5 landfill areas and an extensive commercial
network present across all of Italy. We estimate that this deal will be value-accretive
starting from 2015.
2014-2018 Business Plan. The company has highlighted key development areas and goals
to be achieved by 2018 in its recently presented 5-year business plan. The company’s goal
is still to foster the development of technological solutions for energy production from
renewable sources and to provide environmental services. The strategy for the years to
come is to increase both revenues and profit margins from stable assets (biogas from
landfills and district heating) as well as to develop integration activities and synergies in the
waste management sector through cross-selling and commercial network integration. In
addition, Kinexia is seeking to increase retail market penetration with new partnerships and
to expand abroad into the Far East, Northern Africa, the Middle East and Eastern Europe.
Several projects are already in the pipeline, such as an integrated project under
development in Far East, an efficiency pilot project in the Middle East and a waste disposal
project in North Africa.
OUTPERFORM, target price Eu2.70. We have a positive view on the merger operation as the
group will diversify operative risk in a difficult time for the renewable energy sector. Business
plan goals look feasible in the long run, but in the short/medium term visibility is still low. Our
valuation is based on an SOP method for the different business units: Waste, District
Heating, Renewable Power Generation, EPC & O&M, Energy Efficiency and Services. For
each business line, we have used different valuation methods, including peer group
multiples for industrial operations and DCFs for utility operations. The resulting fair value is
Eu3.2, to which we have applied a justified reasonable 20% discount for low visibility and
liquidity versus its sector peers, leading to a target price of Eu2.70.
Key Figures
2012A
2013A
2014E
2015E
2016E
Sales (Eu mn)
Ebitda (Eu mn)
Net profit (Eu mn)
EPS - New (Eu)
EPS - Old (Eu)
DPS (Eu)
62
9
1
-0,009
-0,009
0,000
164
54
4
0,052
0,052
0,020
172
46
5
0,092
0,193
0,029
192
60
7
0,125
0,294
0,039
211
68
15
0,258
Ratios & Multiples
2012A
2013A
2014E
2015E
2016E
nm
0,0%
22,6
7,6%
43,0
0,9%
5,7
21,4%
24,6
1,3%
5,6
17,8%
18,0
1,7%
4,3
20,3%
8,8
3,6%
3,6
33,0%
P/E
Div. Yield
EV/Ebitda
ROCE
0,081
KINEXIA - 12m Performance
2,6
2,4
2,2
2,0
1,8
1,6
1,4
1,2
1,0
l-13
s-13
n-13
KINEXIA
g-14
m-14
m-14
KINEXIA Rel. to BCI Index (Reb.)
RATING: OUTPERFORM
TARGET PRICE (Eu): from 1.80 to 2.70
Change in EPS est:
2014E
2015E
nm
nm
STOCK DATA
Reuters code:
Bloomberg code:
Performance
Absolute
Relative
12 months H/L:
KINX.MI
KNX IM
1m
-3,0%
1,7%
3m
12m
-4,3% 91,0%
-0,8% 60,1%
2.53/1.16
SHAREHOLDER DATA
No. of Ord. shares (mn):
Total No. of shares (mn):
Mkt Cap Ord (Eu mn):
Total Mkt Cap (Eu mn):
Mkt Float - ord (Eu mn):
59
59
133
133
25
Mkt Float (in %):
18,8%
Main shareholder:
Pietro Colucci
44,4%
BALANCE SHEET DATA
Book value (Eu mn):
BVPS (Eu):
P/BV:
Net Financial Position (Eu mn):
Enterprise value (Eu mn):
Please see important disclaimer
on the last page of this report
The reproduction of the information, recommendations and research produced by Intermonte SIM contained herein, and of any of its parts, is
strictly prohibited. None of the contents of this document may be shared with third parties without Company authorization.
Intermonte SIM S.p.A. Milan 20122 (Italy) - Corso Vittorio Emanuele II, 9 - phone: +39-02-77115.1 fax: +39-02-77115.300
New York - (USA) - Sales contacts: JPP Eurosecurities, 595 Madison Avenue, 10022 - phone: +1 (212) 521 6718
2014
109
1,40
1,6
-129
261
[email protected]

2012A
2013A
2014E
2015E
2016E
31/12/2012
31/12/2013
31/12/2014
31/12/2015
31/12/2016
Sales
EBITDA
EBIT
Financial income (charges)
Associates & Others
Pre-tax profit (Loss)
Taxes
Tax rate (%)
Minorities & discontinue activities
Net profit
Total extraordinary items
Ebitda excl. extraordinary items
Ebit excl. extraordinary items
Net profit restated
62
9
3
(1)
0
2
(1)
-69,5%
0
1
0
9
4
(0)
164
54
16
(10)
0
7
(3)
-40,3%
(1)
4
1
54
16
3
172
46
18
(10)
1
9
(4)
-45,2%
0
5
0
46
18
5
192
60
22
(10)
1
13
(6)
-47,1%
0
7
0
60
22
7
211
68
33
(8)
1
25
(10)
-41,4%
0
15
0
68
33
15
PER SHARE DATA (Eu)
Total shares out (mn) - average fd
EPS stated fd
EPS restated fd
BVPS fd
Dividend per share (ord)
Dividend per share (sav)
Dividend pay out ratio (%)
29
0,025
-0,009
1,750
0,000
0,000
59
0,062
0,052
1,698
0,020
0,000
59
0,092
0,092
1,397
0,029
0,000
59
0,125
0,125
1,949
0,039
0,000
59
0,258
0,258
2,039
0,081
0,000
CASH FLOW (Eu mn)
Gross cash flow
Change in NWC
Capital expenditure
Other cash items
Free cash flow (FCF)
Acquisitions, divestments & others
Dividend
Equity financing/Buy-back
Change in Net Financial Position
6
(6)
(10)
0
0
(1)
0
0
(9)
43
(63)
(25)
0
(46)
(1)
0
0
(46)
33
(2)
(19)
0
12
39
(1)
0
50
45
(2)
(40)
0
2
(1)
(2)
6
6
51
(9)
(26)
0
15
(1)
(2)
0
12
Total fixed assets
Net working capital
Long term liabilities
Net capital employed
Net financial position
Group equity
Minorities
Net equity
162
(24)
(77)
61
(65)
55
(5)
50
219
47
(179)
88
(179)
121
(43)
78
200
49
(129)
120
(129)
125
(16)
109
169
52
(123)
98
(123)
130
(16)
114
151
60
(111)
101
(111)
142
(16)
127
Average mkt cap - current
Adjustments (associate & minorities)
Net financial position
Enterprise value
133
0
(65)
198
133
0
(179)
311
133
0
(129)
261
133
0
(123)
256
133
0
(111)
243
EBITDA margin*
EBIT margin*
Gearing - Debt/equity
Interest cover on EBIT
Debt/Ebitda
ROCE*
ROE*
EV/CE
EV/Sales
EV/Ebit
Free Cash Flow Yield
14,2%
6,5%
119,0%
2,3
7,44
7,6%
1,5%
4,5
1,3
nm
0,0%
33,2%
9,7%
147,3%
1,7
3,28
21,4%
5,7%
4,2
1,9
19,5
-34,5%
27,0%
10,7%
102,9%
1,8
2,77
17,8%
5,8%
2,5
1,5
14,1
9,0%
31,0%
11,5%
94,7%
2,3
2,06
20,3%
6,6%
2,3
1,3
11,6
1,5%
32,3%
15,5%
77,9%
4,0
1,62
33,0%
12,6%
2,5
1,2
7,4
11,7%
Sales
EBITDA*
EBIT*
Net profit
EPS restated
-30,2%
-43,4%
nm
nm
nm
163,9%
519,3%
295,2%
395,7%
nm
5,0%
-14,7%
16,0%
47,9%
75,1%
11,7%
28,3%
19,7%
36,4%
36,4%
9,7%
14,4%
47,8%
105,8%
105,8%
Fiscal year end
PROFIT & LOSS (Eu mn)
BALANCE SHEET (Eu mn)
ENTERPRISE VALUE (Eu mn)
RATIOS(%)
GROWTH RATES (%)
* Excluding extraordinary items
Source: Intermonte SIM estimates
2
[email protected]
KINEXIA - KEY FIGURES
3

Corporate Structure and Business Description

Kinexia’s Ownership Structure

Management

Waste Italia at a Glance

Merger Valuation

SOP Valuation

Business Plan to 2018

Key Financials, Before & After Incorporation of Waste Italia

Sector Trends

APPENDIX
[email protected]
TABLE OF CONTENTS
Corporate Structure & Business Description
Kinexia SpA is a holding company whose operating subsidiaries are active in the renewable
energy and environment management sectors. The main business units are:

Photovoltaic: Kinexia has built a total of 46MW of solar parks, of which 1MW is still owned

Wind: the company is currently building a 30MW wind farm in Calabria

Biomass and Biogas plants: Kinexia owns 6 biogas by landfill plants with a generation
capacity of 6.3MW and 7 biomass plants with a capacity of 7MW

District Heating: a cogeneration power plant with installed capacity of 19.4MWe plus a
support thermal plant, for combined thermal power of 100MWth

Environment Management: disposal landfill with a residual capacity of 2.8mn tons;
authorization for a 1MW waste digestion plant in Vigevano; acquisition of two new initiatives
in the environmental area should enable important synergies

Waste Collection: 7 depots and about 150 collection vehicles, 65 of which are owned
Source: Company presentation
4
Selection & Treatment: 8 selection plants, an RDF production plant and a tyre treatment site

Landfills: 5 landfill sites are in operation and 3 sites are in post-closure phase
[email protected]
through subsidiary Waste Italia, which is going to obtain additional authorizations

5
Kinexia’s Ownership Structure
Kinexia (formerly Schiapparelli 1824) was initially established as a producer of cosmetics and
nutrition products. In July 2008, the company diversified into renewable energy production,
which soon became the core business. The company’s leading stakeholder is Mr. Pietro Colucci,
who is also Chairman and CEO.
Shareholders pre- and post-merger
Pietro
Colucci
Francesco
Colucci
Davide
Scarantino
Palmiro
Comune di
Settimo Tse
Synergo
Floating
TOT
Kinexia Standalone
Sostenya Kinexia +Sostenya
Synergo
w/o POC
Kinexia +Synergo Synergo w
POC
Kinexia +Synergo
%
#
#
#
%
#
#
%
#
#
%
40%
11.708.136
14.387.293
26.095.429
60%
0
26.095.429
47%
0
26.095.429
44%
6%
1.846.617
0
1.846.617
4%
0
1.846.617
3%
0
1.846.617
3%
3%
4%
981.345
1.133.471
0
0
981.345
1.133.471
2%
3%
0
0
981.345
1.133.471
2%
2%
0
0
981.345
1.133.471
2%
2%
16%
0%
31%
100%
4.628.853
0
9.012.955
29.311.377
0
0
0
14.387.293
4.628.853
0
9.012.955
43.698.670
4.628.853
12.404.580
9.012.955
56.103.250
8%
22%
16%
100%
0
2617201
0
2617201
4.628.853
15.021.781
9.012.955
58.720.451
8%
26%
15%
100%
11%
0
0% 12.404.580
21%
0
100% 12.404.580
Source: Company information
Kinexia and Synergo have signed a strategic agreement where Kinexia will acquire 32.718% of
the share capital of Waste Italia Holding SpA, the parent company of the Waste Italia group.
After this acquisition, Kinexia’s total equity stake in Waste Italia, which will be incorporated into
Kinexia, will go from 54.12% to 86.83%. Once Synergo is merged, Pietro Colucci will own 44% of
the group (after initially moving up to 60% ownership following the merger with Waste Italia).
Kinexia – Shareholders YTD
Source: Company information
[email protected]
Shareholder
s Kinexia
post- merger
Management

Chairman and CEO: Pietro Colucci

CFO: Marco Acquati

Managing Director: Flavio Raimondo

Head of Investor Relations: Raffaele Vanni

Strategic Development: Valerio Verderio

Business Development: Luca Borreale

Commercial Director: Agostino Ferrari
The new acquisition: Waste Italia at a Glance
Waste Italia is the leading vertically integrated operator in the special waste management
(WasteWay). It has over 3,000 customers and an average customer retention rate of 98%. Waste
Italia collected 270,792 tons, processed 211,900 tons and disposed of 909,910 tons of special
waste (LTM March 2014). Waste Italia can rely on a partner network so as to cover all of Italy
through the WasteWay project: it has 50 partners in total, six “gold” partners with national
coverage, characterized by sizeable operations and long-term relationships;
39,094 tons of
waste was collected and disposed of through this partnership network in 2013.
General business lines
The company’s activities can be subdivided into three main areas:
Source: Company internal data
6

Collection: collection of waste from producers via both a proprietary fleet and third parties

Selection: sorting materials into recoverable and non-recoverable, compacting and refusederived fuel (RDF)

Disposal: permanent waste disposal
[email protected]
sector with dominant market positions in Northern Italy and a national partnership network
Source: Company internal data
Source: Company internal data
[email protected]
7
Source: Company internal data
8
[email protected]
Source: Company internal data
9
Source: Company internal data
Value chain of waste management
Source: Company internal data
[email protected]
Evolution in Landfill Capacity
Source: Company internal data
Expected landfill capacity trend
Source: Company internal data
10
[email protected]
Customer retention history
11
Waste Italia Merger Valuation
On 17th June 2014, Kinexia and Synergo signed a strategic agreement where Kinexia will
acquire 32.7% of the share capital of Waste Italia Holding, the parent company of the Waste
Italia Group. After this acquisition, Kinexia’s total equity stake in Waste Italia, which will be
incorporated into Kinexia, will go from 54.1% to 86.8%.
The equity value of the operation is Eu35mn, to be paid at closing (Eu28.9mn in Kinexia shares
at Eu2.33 each, and Eu6.1mn through a Synergo bond with a strike price of Eu2.33 per share for
a total of 2,617,201 shares. The closing is expected to take place by the end of September.
After this deal is completed, Synergo will own 22.11% of Kinexia, while Kinexia’s majority stake in
Waste Italia Holding will go up to 86.83%.
The deadline for the completion of this merger is 31st December 2014.
The reasons and benefits behind the merger can be summarized as follows:
become the leading private sector player on the Italian market, capable of combining
renewable energy and waste businesses

grow through synergies to obtain competitive advantages

strengthen the capital structure

exploit cross-selling opportunities

benefit from better regional coverage

reach a critical mass to be able to compete to exploit new opportunities, including those in
international markets

risk diversification
Kinexia + Waste Italia -Deal valuation (Pre-Synergies)
Eu mn
Kinexia
Waste Italia
Kinexia + Waste
2014E
2015E
2014E
2015E
2014E
2015E
Ebitda
20,6
28,6
26,0
32,1
43,2
56,5
Net profit
2,4
3,4
1,5
2,5
3,7
5,6
NFP
-92,4
-84,4
-83,3
-77,2
-164,7
-151,4
Debt/Ebitda
-4,5
-2,9
-3,2
-2,4
-3,8
-2,7
N. shares
29,3
29,3
44,3
44,3
EPS
0,082
0,116
0,084
0,126
2,0%
8,3%
44,3
44,3
% change
Tot. New shares
issued
29,3
29,3
15,0
15,0
Equity Value
68,3
68,3
107,0
107,0
103,3
103,3
NFP
-92,4
-84,4
-83,3
-77,2
-164,7
-151,4
EV
160,7
152,6
190,3
184,2
268,0
254,7
EV/Ebitda
7,8
5,3
7,3
5,7
6,2
4,5
P/E
28,4
20,1
71,3
42,8
27,9
18,5
Source: Intermonte analysis on company information
The debt/EBITDA ratio of the combined company (Kinexia and Waste Italia) for 2014 is 3.8,
versus 4.5 for Kinexia on a standalone basis. Likewise, with regard to EV/EBITDA, Kinexia postmerger will be at 6.2 in 2014 (while the company by itself would have a 7.8 multiple in 2014). In
terms of EPS, the deal also has a positive effect.
[email protected]

SOP Valuation
Putting the values of Waste Italia and Kinexia’s existing business together, we calculate a fair
equity value (the average between 2014 and 2016 values) of Eu185.5mn or Eu3.2per share, of
which Eu30.2mn is the value of the waste management business. We then applied a visibility and
low liquidity discount of 20%, arriving at a target price of Eu2.70 per share.
Sum of the Parts
Eu mn
2014
2015
2016
Average
Waste Italia (EV)
182,0
190,3
184,2
184,2
Old Kinexia
129,3
129,7
130,4
129,8
EPC&O&M
9,6
9,0
8,6
9,0
Power Generation
27,0
27,0
27,0
27,0
Comment
Implied merger valuat ion
Transact ion mult iples
(Ternienergia/Sunpower
Corp)
Wast e (Faeco & Ot hers)
29,2
30,2
31,2
30,2
Book Value+Capex
SEI (dist ric heat ing)
63,6
63,6
63,6
63,6
DCF (with WACC: 5.48%;
NPV: Eu17.5mn; TV:
311,3
320,0
314,6
315,3
NFP - Year End -128,6
-123,1
-110,7
-125,8
Equity Fair Value cum minorites
182,7
196,9
203,8
189,5
Innovat ec
11,4
11,4
11,4
11,4
Minorities (13% Waste Italia , 27% SEI)
-17,0
-17,0
-17,0
-17,0
Equity Fair Value ex minorites
177,1
191,3
198,2
188,9
Mn shares
58,7
58,7
58,7
58,7
Fair value ps
3,0
3,3
3,4
3,2
20,0%
20,0%
20,0%
20,0%
2,4
2,6
2,7
2,7
Visibility/Liquidity discount
TARGET PRICE
Current market cap
Source: Intermonte estimates
Peers Analysis
Kinexia is overall cheaper than its market peers in the main segments of business as EV/EBITDA
2014 is 4.3 versus an average 2015 of 6.7 as well as Kinexia P/ E is 18.0 versus peers average
running for 18.1
Price
Company
Mean
Median
Median
Median
Median
Median
Median
Market
Ev/EBITDA Ev/EBITDA Ev/EBITDA Ev/EBIT FY1 Ev/EBIT FY2 Ev/EBIT FY3 P/E FY1
Mean
P/E FY2
P/E FY3
Net Div
Net Div
Net Div
Cap.
FY1
Yield FY1
Yield FY2
Yield FY3
FY2
Mean
Mean
Mean
Mean
FY3
POWER GENERATION
Alerion Clean Power S.p.A.
3,30
145
9,6
8,8
27,6
20,0
48,8
30,4
3,6%
3,6%
Falck Renewables S.p.A.
1,26
366
7,7
6,9
6,8
12,6
10,8
9,9
24,1
15,9
13,2
2,5%
2,5%
2,5%
EDP Renov av eis SA
5,13
4.475
8,7
7,4
6,6
17,2
14,1
12,3
35,6
28,4
24,5
0,8%
1,0%
1,2%
Abengoa S.A. Class A
4,50
3.258
7,9
7,8
7,1
13,3
12,7
11,1
29,9
17,9
13,8
2,5%
2,6%
2,6%
ERG S.p.A.
11,80
1.774
5,8
5,4
5,0
12,2
11,2
10,4
20,3
18,1
17,7
4,2%
4,2%
4,2%
ENVIRONEMENT
Seche Env ironnement SA
25,40
219
6,3
5,8
5,5
14,9
13,2
13,0
23,1
15,9
14,5
3,6%
3,7%
3,8%
Hera S.p.A.
2,05
2.911
6,5
6,3
6,2
12,5
11,8
11,5
18,7
17,0
16,1
4,3%
4,6%
4,8%
A2A S.p.A.
0,80
2.479
5,9
5,7
5,2
12,4
11,7
10,4
13,2
12,5
10,6
4,5%
5,0%
5,0%
ENEL Green Power
2,06
10.280
9,3
8,8
8,0
15,3
13,8
12,6
20,2
17,3
14,0
1,5%
1,7%
2,1%
EPC
TERNIENERGIA
2,02
63
5,5
4,6
4,0
8,9
7,4
6,1
9,3
7,4
6,4
3,6%
4,5%
5,2%
KINEXIA
2,26
132,43
5,61
4,28
3,56
14,11
11,54
7,43
24,55
18,00
8,75
1,3%
1,7%
3,6%
avg w/o Kinexia
5,83
2.597
7,3
6,7
6,0
14,7
12,7
10,8
24,3
18,1
14,5
3,1%
3,3%
3,5%
avg w Kinexia
5,51
2.373
7,2
6,5
5,8
14,6
12,6
10,5
24,3
18,1
14,0
2,9%
3,2%
3,5%
Source: Intermonte estimates for Falck, ERG, Hera, A2A, Enel GP, Ternienergia and Kinexia; Facset consensus for Alerion, EDP, Abengoa and Seché.
12
[email protected]
Eu46.1mn)
Total EV
13
Business Plan to 2018
Sostenya and Kinexia have approved a joint business plan for 2014-2018 that includes strategic
guidelines. The plan has three focal points: i) renewable energy business; ii) environment
management business; and iii) internationalisation.
In more detail:
i)
Renewable energy business: the business plan goal is to develop, realise and manage
diverse renewable energy production plants (solar, wind, cogeneration, waste, biomass and
biogas) in a sustainable and competitive way. The company wants to focus on innovative
technologies, products and services in the field of smart grids and smart cities, as well as
energy storage.
ii) Environment management business: the aim is that of an integrated management of special
wastes to achieve full control of the waste chain, so as to be able to offer customised
services for collection, transportation, selection, treatment and final disposal.
Africa, Far East, China, India and Latin America – with the objective of developing new
businesses (including joint ventures) in the environment and renewable energy fields.
The company is aiming to achieve a 9.8% revenue CAGR from 2013 to 2018, thanks to:

Smart energy with Innovatec, contributing up to 23%

New approach in waste management (Westend)

New acquisitions in waste treatment and landfills (Lafumet and Fornovo)

Environmental services provided by subsidiary Faeco
The business plan has been developed around the idea of building and maintaining a balanced
mix of initiatives, some that should generate cash quickly (such as treatment plants) and other
steadier and slower investments (such as landfills).
2013 Results, Before & After Merger* of Waste Italia (as illustrated in the business plan)
Source: Company Business Plan
As shown above, 2013 financials will increase on a pro-forma basis with the incorporation of
Waste Italia Holding. However, Waste Italia Holding is burdened with Eu75mn in debt, of which
Eu14mn is expected to be paid off by the end of 2014. The remainder is expected to be settled
by 2016, at an average interest rate of 5.17% over the 2-year amortisation period.
[email protected]
iii) Internationalisation: the company is focusing on some key high-potential areas – North
The combined 2013 revenue of Eu165mn is more than double Kinexia’s 2012 revenue of Eu62mn.
Combined pro-forma EBITDA was Eu55.8mn, or 34% of sales; combined EBIT was Eu16.2mn in
2013 (16% of sales), vs. Kinexia’s Eu3.3mn in 2012.
The Waste Italia Holding acquisition is expected to boost Kinexia’s revenues even further thanks
to new landfill authorisations: one has been granted and the landfill will become active later this
year, while another two are expected to be obtained in 2015.
Source: Company Business Plan
Revenues 2013 breakdown before & after merger (as per the business plan)
Source: Company Business Plan
The environment management business is the line that will influence overall revenue growth the
most, going from Eu20mn pre-merger to Eu107mn post-merger, or from 26% to 65% of the total.
The next largest business post-merger will be District Heating (from Eu24mn pre-merger to
Eu25mn).
14
[email protected]
Key 2013 Financial Ratios (as per the company business plan)
15
Source: Company Business Plan
Kinexia’s revenues are expected to grow by 60% over the next five years. In 2018, the company
expects to have an EBITDA margin of 29.9% and an EBIT margin of 16.2%. Net gearing (net debt
divided by total assets) is expected to be 16.8% in 2018.
[email protected]
2018 Business Plan Targets
Key Financials: After Waste Italia Merger
2013 financial statement shows an actual value of production of Eu164mn. Post-merger EBITDA
2013 is Eu54.5mn (vs. Eu55.8mn declared in the plan). In our estimates, we forecast progressive
revenue growth to reach Eu211mn in 2016, where Waste Italia is expected to contribute 47%.
Energy Efficiency business will increase with CAGR of 47%, thanks especially to Innovatec. We
estimate that EBITDA will increase 5% per year from 2013 to 2016, reaching Eu68mn. EBIT is
estimated to rise by 24% to Eu32.7mn in 2016, with Waste Italia contributing 33% of the total in
2016. 2013 Net Profit is Eu3.6mn (vs. the company’s estimate of Eu3.8mn), and we estimate that
the bottom line will be Eu14.5mn in 2016.
(Eu mn)
2013A
2014E
2015E
2016E
VALUE OF PRODUCTION
164.028
172.197
192.379
211.089
Cost of raw and consumable materials
-29.305
-36.161
-36.552
-37.996
Cost of serv ice
-57.765
-65.435
-69.256
-75.992
Labour Cost
-15.882
-17.220
-19.238
-18.998
Other
-6.578
-6.888
-7.695
-9.881
-142.867
Total Operating Costs
-109.530
-125.704
-132.741
EBITDA
54.498
46.493
59.637
68.222
% Ebit da Margin
33,22%
27,00%
31,00%
32,32%
Ammortization&Depreciation
-29.325
-24.000
-30.000
-29.000
Prov isions
-9.227
-4.000
-7.500
-6.500
EBIT
15.946
18.493
22.137
32.722
15,5%
% Ebit Margin
9,7%
10,7%
11,5%
Net Financials
-9.508
-10.000
-9.600
-8.200
Pre tax Profit
7.337
9.293
13.337
25.322
% Pre Tax Profit
4,47%
5,40%
6,93%
12,00%
Net Profit
4.381
5.095
7.056
14.841
GROUP NET PROFIT
3.648
4.795
6.756
14.541
% Net Margin
2,22%
2,78%
3,51%
6,89%
Source: Intermonte estimates
Note: All 2013 data are pro-forma Kinexia + Waste Italia
Net Debt is also expected to improve from Eu178.7mn at the end of 2013 to Eu126.9mn in 2014
and then to Eu110.9mn at the end of 2016, thanks to Asset Disposal in 2014 for Biogas Plants
(7MWp still in operation)
16
[email protected]
Kinexia Group P&L
17
(Eu mn)
2013A
2014E
2015E
2016E
Group Net Profit
3.648
4.795
6.756
14.541
Ammortization
29.325
24.000
30.000
29.000
Prov isions and Depreciation
9.227
4.000
7.500
6.500
-62.958
-1.819
-2.292
-8.546
Change in NWC
Gross Operating Cash Flow
-20.758
30.976
41.964
41.495
Capex
-25.000
-19.000
-40.000
-26.000
FREE CASH FLOW
-45.758
11.976
1.964
15.495
Change in Financial Assets
-209
-230
-253
-279
Deferred Tax Assets Change
-422
-464
-511
-562
Change in Participation
0
0
0
0
Acquisition/Disposal (net of debit)
0
40.000
0
0
-631
39.305
-764
-840
OTHER FIXED ASSETS CHANGES
Share Capital Increase
0
0
6.000
0
Div idend
0
-1.174
-1.694
-2.310
TFR Changes
0
0
0
0
Sev erance & Other fund Changes
0
0
0
0
Deferred Tax Liabilities Change
0
0
0
0
-46.389
50.108
5.506
12.345
Initial Net Financial Position
-65.456
-178.700
-128.592
-123.086
Final Net Financial Position
-178.700
-128.592
-123.086
-110.741
-89350
-153646,13
-125839,12
-116913,35
NET CASH FLOW
Av g NFP
Source: Intermonte estimates
Note: All 2013 data are pro-forma Kinexia + Waste Italia
Source: Intermonte analysis
[email protected]
Kinexia Group - Cash Flow
APPENDIX
Sector Trends: Energy Sustainability in Italy
Italy’s National Energy Strategy (SEN)
The Italian Government’s guidelines to pursue energy sustainability are contained in a March 2013
report published by the Ministry for Economic Development.

Significantly reduce the energy cost gap for consumers and businesses, by bringing prices and
costs in line with European levels by 2020 and ensuring that the longer-term energy transition
(2030-2050) will not compromise Italian and European industrial competitiveness.

Achieve and exceed the environmental and decarbonisation targets established by the
European Union’s 2020 Climate and Energy Package (known as the “20-20-20” package) and
take on a lead role in defining and implementing the Roadmap 2050.

Improve security of supply, especially in the gas sector, and reduce dependency on imports.

Foster sustainable economic growth by developing the energy sector, especially “green”
energy, to tap into a huge potential (the IEA estimates $38 trillion in global investment by 2035).

In the medium term (up to 2020), the Government has 7 main goals, namely:
18

Energy efficiency: by reducing emissions and improving security of supplies by reducing
dependency on foreign countries

Gas market competitiveness: create an internal market that is fully integrated with other EU
countries; there is an opportunity for Italy to act as a crossroads for gas entering Europe from
Africa

Sustainable development of renewable energy: Italy aims to beat Europe’s 20-20-20 goal and
reduce emissions; the Government believes investing in the renewable energy sector will help
spur economic growth in general

Improve electricity infrastructure: improve the market to make it free, efficient, totally integrated
with the rest of Europe in terms of both infrastructures and regulations and at prices that should
be in line with other European countries

Restructuring the refining industry and the fuel distribution sector: profound restructuring is
needed in these industry areas, and this could lead to more competitive and technologically
advanced assets

Sustainable domestic production of hydrocarbons: leverage more on the country’s oil and gas
reserves, while paying the utmost attention to potential environmental impact of production

Modernise governance: Italy needs to make its decisional processes more efficient, as
procedures are often lengthy and complicated; a shared national energy strategy that is clear
to everyone is the first important step in this direction
[email protected]
The Government’s main long-term objectives (to be achieved by 2050) are:
19
The role and the potential of energy efficiency in Italy
The Government’s top priority for 2020 is energy efficiency, which is indeed the most important from
a cost/benefit perspective. According to the SEN report, the country can save Eu9bn/year in
Source: SEN
The Government estimates that energy efficiency will act as leverage for investments to the tune of
Eu50-60bn by 2020, about 40% of which will be supported by incentives. In the renewable energy
field, cumulated investments are estimated at Eu60-70bn, of which 60% linked to incentives.
Cumulated investments to 2020 (in billion euros)
Source: SEN
The main goal of these energy efficiency initiatives is to reduce energy consumption by 24%.
Consequently, this implies an Eu8bn annual reduction in costs for Italian imports (or Eu62bn over the
entire timeframe).
[email protected]
electricity and gas bills.
The transport business accounts for the largest share of Italy’s energy consumption (32%), followed by
the residential and service sectors (23% and 12-13%), while public bodies consume about 2-3% of the
total.
Energy Consumption in Italy, 2010
(figures are percentages of the total)
Source: SEN
Overall, “civic” usage represents 40% of total consumption. It is evident that the majority of
investments made from now to 2020 will be concentrated in the civic sectors (around Eu50-60bn).
The company has outlined a five-year growth strategy involving all business segments as part of
its business plan.
20
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Source: SEN
Source: Intermonte on company data
[email protected]
21
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o
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Getters
DETAILS ON STOCKS RECOMMENDATION
Stock NAME
KINEXIA
Current Recomm:
OUTPERFORM
Previous Recomm:
OUTPERFORM
Current Target (Eu):
2.70
Previous Target (Eu):
1.80
Current Price (Eu):
2.26
Previous Price (Eu):
1.62
Date of report:
15/07/2014
Date of last report:
13/11/2013
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