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Energiekontor: Would you buy this high-dividend yielding stock?

Publication Date: 04 Apr 2019 - By Kshitija Bhandaru By Kshitija Bhandaru
Actionable
Differentiated

Equity Fundamental Equity EU ex-UK UK Energy

Energiekontor (ETR: EKT) is a renewable energy project developer and engages in planning, construction, operation and management of wind farms and solar parks in several European countries.

Headquartered in Germany, the company was listed on the Frankfurt securities exchange in 2002. The company operates a huge portfolio of 34 wind farms it owns and a solar park with a nominal output of approximately 270MW.

Recently, the company signed a long-term power purchase agreement (PPA) with EnBW, a utilities company based in Germany for an 85MW solar park. The “first-of-its-kind” PPA will enable Energiekontor to build and operate the photovoltaic (PV) system without subsidies under the German Renewable Energy Sources Act. Energiekontor intends to “take on a pioneering role economically and implement the first wind and solar parks in all target markets as quickly as possible, regardless of government subsidies at market prices.”

Energiekontor’s financials

The company’s revenue dropped 20.5% in the first half of 2018 to €32.9m (1H2017: €41.4m). Earnings before taxes (EBT) climbed almost 7% to €4.7 million (1H2017: €4.4m). Consolidated net income was €3.4m (1H2017: €3.2m). On an annual basis, revenue fell from €201.8m in 2016 to €149.9m in 2017, while net income fell from €25.3m in 2016 to €11.9m in 2017.

The outlook looks dismal for FY 2018 as well. According to analysts’ forecasts, EKT’s revenue is expected to fall ~24% to €114.06m and its net income is expected to fall 56.72% to €5.15m.

However, analysts from First Berlin Equity Research, expect Energiekontor to “resume its growth path in 2019E due to a well-filled international project pipeline and the company’s progress in realising projects based only on power purchase agreements (PPA).” Revenue in 2019 is expected to increase by 58% and by ~61% in 2020 on an annualised basis. Net income is expected to increase in 2019 and hold steady in 2020.

EKT’s debt level currently stands at around €233.8m which considerably exceeds its equity (€70.2m), meaning that the company is highly levered, not unusual for a smallcap. The company’s EBIT is 1.9x annual interest expense, meaning that interest payments on debt are not sufficiently covered by earnings.

Conclusion

While the decline in EKT’s top and bottom line could be a cause of worry for investors, income investors might consider the 4.3% dividend yield the company offers and the fact that it has been regularly increasing its dividend payments over the past decade.

With an increase in revenue and earnings forecast for the coming years, return on equity is expected to rise to 22.8% over the next three years from the current 19%. EKT share price has increased by 9.3% year-over-year. In comparison, the renewable energy industry in Germany returned 11.9% over the past year, while the German market returned -7.3% in the same period. EKT had a market capitalisation of €228.88m, at the time of writing. Although there are risks to owning Energiekontor, if you’re an aggressive investor, looking to build or add steady income to your green portfolio, I would go with EKT.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Kshitija Bhandaru

 

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