June 19, 2024

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Something big is brewing – something very big

Something big is brewing – something very big

Written by the Apostle Menthos

The continuous improvement in volumes and profitability that Cenergy Group (CENER) displays in each fiscal quarter has become a habit.

So again, the usual suspect in the first quarter of 2024 delivered a significant +28% increase in earnings before tax, financing, investment results and amortization (EBITDA) to close at EUR 54.4 million, from EUR 44 million in the corresponding period. In 2023, while at the same time it managed to jump +54% its net profits from 15.36 to 23.6 million euros, reaching 0.12419 euros per share from 0.08079.

I was also impressed by the significant increase it showed in gross profit, reaching +30%, from €45.77 million to €59.47 million on sales that increased by +4% from €381.3 million to €395.74 million. Looking at it better, I found that behind this very positive element is Corinth Pipeworks, as it is now moving on the projects that it has implemented and is implementing with an EBITDA margin of close to +18%, which creates a very favorable system in its profitability. group.

Other commercial data that generates a lot of talk and is able to “wedge” Cenergy without fail in the triumvirate of imperial dominance in the field of global cables, namely between the Italian company Prysmian, the Danish company NKT and the French company Nexans, which controls 70% with 75% of cable supplies, Its US subsidiary, Hellenic Cables Americas.

This “Trojan horse”, although our management says it will take it into account in its investment plan, has already been placed in the United States.

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This new, state-of-the-art, $300 million major cable manufacturing facility will be “built” on the 154-acre port-owned industrial site at Wagner Point, Baltimore, by Synergy to change the balance. Power on the global cable chessboard. Note this.

So the United States, which has a grid area as large as the size of the whole of Europe and a little more, may not currently be generating significant sales in submarine cables, but its electrical grid is so vastly outdated that it needs the world’s most urgent replacement. Upgrade next years. In other words, where do data centers start to connect by the dozens. Synergy is also betting on this giant pie worth tens of billions of dollars, which could bring a strategic investment of 300 million euros, with a final decision to provide transferable tax breaks of up to 58 million dollars, but what it really expects from there is perhaps superiority. All imagination.

The world’s largest cable manufacturer, Prysmian, which on April 15 acquired the American company Encore Wire for 3.9 billion euros, or 4.2 billion dollars, is not the only “joke” after all, as it has annual sales of 2.6 billion dollars in… Low and middle markets. Medium voltage cables, which are primarily used in the construction industry.

In other words, we’re talking about a purchase price that is 62% higher than its sales volume. Let’s say he buys Cenergy for $2.64 billion, or roughly €2.47 billion, or €13. The comparison would be more interesting if we put in the denominator the €230-250 million that Cenergy expects for this year as EBITDA.

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And also, to give you an idea of ​​how much global stage is being staged in the cable space, there are currently analyzes by financial houses, like the one recently published in the Financial Times, where these top three companies in the industry should by 2028 have a significant amount of… Excess funds from free cash flow that must at all costs find other outlets to deploy besides dividends to shareholders. Cenergy, of course, will feel the same wave of strong cash flows in the coming years.

In fact, according to Visible Alpha, Prysmian together with NKT and Nexans will have such free cash flows in the coming years that they are expected to reach €6.2 billion in total. Overall, there is a great storm of acquisitions in the cable industry.

It’s easy for anyone to see what could happen almost immediately at Cenergy, with its $3.1 billion backlog and Hellenic Cables Americas enticing.

It also gives the basis for the significant and urgent investments made by Cenergy to increase its production capacity not only in submarine cables in Corinth, but also in terrestrial cables in Thebes and in the new unit in Elionas Thebes (the former factory of Pejetakis) which will be commissioned in the fourth quarter. From 2024. Productivity that will play its strategic role in the early years of Hellenic Cables Americas.

This whole scenario being set up around the world can hardly deny share prices above €10.52 or a capitalization of €2 billion. Chart analysis shows intent for a strong long-term bullish attack, not only above the fragile resistance level of €9, but also above €11.72 to €12.

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What is certain is that Synergy is a big thing for us. Something very big. Which is exactly why it has our full attention.

* Apostolos Manthos is responsible for technical analysis and investment strategy.