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Neoen is a medium-sized company that operates in the renewable energy sector, both in solar and wind generation, and in storage. The company was created in 2008 by Xavier Barbaro, still at the helm, and Jacques Veyrat. They introduced it on the stock exchange in 2018, at a price of 16.50 euros per share. Unlike a few shooting stars in the sector, Neoen has prospered to reach a capitalization of just over 4 billion euros, based on current prices, around 28 euros. The title briefly flirted with the 70 euro mark at the start of 2021, when investors had propelled promising files to imbecile valuations.
The Neoen version at the end of 2022, it is 4,051 megawatts (MW) of installed capacities, distributed between solar installations (50%), wind installations (36%) and energy storage (14%). The group has chosen to concentrate its forces on certain markets and to practice an opportunistic development policy elsewhere. This strategy has led it to become a major player in renewable energies in France (fifth place) and in Finland (second place). But it is in Australia that Neoen has found its main playground and a local No. 1 position. It is also there that its two largest projects are located at the moment, the Western Downs wind farm (460 MW in the long term) and the Goyder solar park (412 MW in the long term). In addition, Australia is the group’s open-air laboratory for large-scale energy storage, with two sites totaling 476 MW in operation, and two others of 200 MW each under construction. This country alone generated 43% of the company’s revenues in 2022, the Europe-Africa zone 42% and the Americas 15%.
Extremely heavy investments
The turnover exceeded for the first time the 500 million euros mark last year, for 414 million euros of Ebitda. This very high gross profitability is not the sign of an unbeatable economic model, but the manifestation of a specific sector. The investments needed to deploy energy production capacities are extremely heavy, while the income they generate is spread over long periods of time. The company therefore generates recurring profits, but not commensurate with the installation costs. A situation illustrated by the cash flows. Neoen’s electricity operation and sale activities generated 457 million euros in operating cash flow in 2022, while its investments consumed 1.1 billion. It therefore lacks about 650 million to balance the operations. These supernumerary funds, the company must find them on the capital market. It therefore displays a high debt, which should increase from 3 billion euros at the end of the year to more than 5 billion at the end of 2025.
A continuous need for fresh money
The medium-term challenge for Neoen is to reach a critical production size that will enable it to self-finance its projects, while generating enough profits to repay its debt. From there, and this is the bet of long-term investors, the company will emerge from adolescence to generate high and predictable profits. In the meantime, there is no mystery: Neoen must regularly seek fresh money, which requires maintaining a climate of trust. So far, it’s all worked pretty well. The company has signed energy supply contracts with many leading players. Their average duration is twelve years, whereas the installations are relatively young (four years on average). The flow of cumulative revenue contracted represented 7.1 billion euros at the end of 2022, an amount to be compared with the aforementioned level of indebtedness.
Well-managed independent players are not legion in the production of renewable energy in France. Neoen remains the investment vehicle with the best chance of reaching maturity, for patient investors capable of supporting the fundraising that will arise in the years to come.