Frost & Sullivan Publishes Quarter 3 Update on Energix Renewable Energies

Significant increases in electricity and green certificate prices in Poland increased company revenue; all projects in development are progressing according to schedule; target price has risen to NIS 5.32.

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Summary of Highlights

Regulation of and demand for electricity and green energy,especially in Poland,supports the companies continued growth; 70% of company revenues are from the Polish market

Electricity and green certificate prices are continuing the rise of the past year,with the main reason for this being the economic growth in the Polish market,which has a direct impact on electricity consumption and in turn increases Energix revenues.

In June 2018,an amendment to the Renewable Energy Law was published in Poland,effectively regulating future tenders in which a tariff will be guaranteed to the winning applicant for 15 years. This has provided regulatory clarity in the Polish market.

Energix published its quarterly report on November 19,2018 with the following highlights:

An increase in revenues in light of increases in electricity and green certificate prices and as a result of a price hedge implemented by the company; as a result of this the company updated its forecasted revenues (added an additional NIS 8M in 2018 compared to the forecast of the last quarter and NIS 24M if compared to the original forecast for the year) and now forecasts a total of NIS 238-246M in 2019.

Revenues from electricity sales for the first nine months of 2018 amount to NIS 89.5M compared with NIS 88.7M for the same period of 2017. During this period,weakening winds,and in turn,decreased wind power,was offset by a significant increase in electricity selling prices in Poland.

Revenues from green certificates have also increased significantly from NIS 9.3M in the first nine months of 2017 to NIS 23M for this period in 2018. This increase stems from a continued trend of green certificate price rise which started in the last quarter of 2017.

We are adopting the updated forecasts for 2018 and 2019 made by Energix as a result of the significant increase in electricity and green certificate prices. We emphasize that our estimate for 2019 is lower than the company's estimate by several percent points due to assigning 80% probability of completion for the U.S. project and due to the use of spot prices (more conservative) for electricity and green certificates in Poland. We see the price hedge implemented a few months ago as a strategic step taken by executives which have demonstrated a comprehensive understanding of the market and have a strong track record of long-term planning.

In light of the company's progress,the increase in electricity and green certificate prices,and thus the increased revenues expected in the beginning of 2019 we are updating our valuation of Energix to be NIS 2,011M / USD 544M (our last valuation amounted to NIS 1,736 / USD 486.2) corresponding to an updated target price ranging between 5.02 and 5.65 and on average NIS 5.32.

In terms of valuing a company through EV/EBITDA ratios,the accepted ratio for this industry based on 22 renewable energy companies that have a similar capital structure to Energix is 15. We estimate the EBITDA at the end of 2018 to be NIS 139M with the enterprise value amounting to NIS 1.9B. This results in an EV/EBITDA ratio of 14.1 for Energix.

For a detailed breakdown of our valuation methodology for the Company please refer to our Initiation of Coverage report of 25 June 2017.

About the Company - Energix Renewable Energies Ltd. (hereinafter "Energix" or "the Company") is a renewable energy company,currently active in the field of Solar Photovoltaic (PV) and Wind Energies. As one of the largest Israeli Independent Power Producers (IPPs),the company initiates,develops,constructs and owns long-term renewable energy projects. Once it has secured production rights through government tenders,Energix sells the generated electricity to utility companies who distribute electricity to end users. Energix shares have traded on the Tel Aviv Stock Exchange since 2011.

Read the full report here.

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