Xetra-listed 7C Solarparken is a small-cap German company that provides energy solutions. 7C Solarkparken’s principal business activity is the production and sale of electricity from solar assets and wind farms. The company also provides technical and commercial services, such as remote monitoring, repair and maintenance of solar assets.
Other revenue mainly consists of rental income from its PV estate portfolio. Over 90% of the company’s portfolio is located in Germany, with the rest in Belgium. The company provides electricity to the government, utilities and local offtake companies.
The company’s founder and CEO is Steven De Proost, a trained engineer who was the former head of equity research at Delta Lloyd Securities and Dexia Securities, covering pan-European utilities and renewable stocks, before he started the company in 2008.
The thesis for investing in 7C Solarparken is that it is cheap at current valuations.
Companies in the energy industry are usually subject to fluctuations in energy prices. This company has two key aspects regarding renewables: the specific yield and capture price. The specific yield can be volatile as it is affected by weather conditions, which have not been great in recent periods.
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However, the specific yield is affected by the Redispatch 2.0 grid stability control system, which the company manages. This control system is used when the grid is overloaded or during shutdowns, throttling the output of 7C Solarparken’s wind and solar assets. Depending on the specifics of the usage during shutdown, grid operators pay compensation to the company.
Secondly, the capture price varies depending on whether it is in Germany or Belgium. For Germany, 7C Solarparken sells its production at the maximum value between the fixed feed-in tariff (FIT) and the market price 7C Solarparken’s three-year price chart ity in the electricity market. Over the past few years, 7C Solarkparken has entered electricity price swaps to counterbalance the volatility of the electricity markets while securing a capture price above the FIT and offset the risk of negative electricity prices. This ultimately reduces the business risk and volatility of the company’s results. for solar power. FIT provides renewable energy producers an above-market price for what they deliver to grid operators. It is usually designed to promote investment in renewable energy sources, such as 7C Solarparken’s wind and solar assets. For Belgium, 7C Solarparken sells roughly half its production at fixed prices to local offtake companies. The other half is sold at the electricity price on the European Energy Exchange market.
The key point is that businesses should rely less on factors that make them volatile, such as being affected by the vagaries of nature. 7C Solarparken is relatively shielded from volatility in the electricity market. Over the past few years, 7C Solarkparken has entered electricity price swaps to counterbalance the volatility of the electricity markets while securing a capture price above the FIT and offset the risk of negative electricity prices. This ultimately reduces the business risk and volatility of the company’s results.
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Of course, structural trends favour the company. According to climate think tank Ember, solar energy output in 2024 overtook coal for the first time within the European Union. While solar output increased by 22% last year to around 304 terawatt hours, coal power fell nearly 16% to just 269 terawatt hours.
In 7C Solarparken’s most recent 3QFY2024 results, its weighted average capacity increased by 4% y-o-y while production, specific yield and capture price were down 1%, 5% and 8%, respectively. The relative underperformance was due to supply shocks caused by the Russia-Ukraine war, which greatly increased power prices. Revenue was down 9.6%, while ebitda fell 21% over the same period.
The comparative decline in revenue was due to the inclusion of solar plants acquired or built in the previous year and reporting period, while the fall in ebitda was due to the impairment of a receivable related to a solar project. In terms of the full-year guidance and outlook for the remained of FY2024, management has indicated a share buyback programme and a cash flow per share value of EUR0.43 ($0.61), which translates to a strong 23% yield.
Financials-wise, 7C Solarparken has grown tremendously over the years. Operating cash flow and free cash flow have grown more than 10 times in the past 10 years, while revenue and ebitda have grown over seven times for the same period. The company’s ebitda margin and operating margin are 73% and 16%, respectively, representing a fairly strong moat.
7C Solarparken’s financial health is also fairly good, with great liquidity and decent solvency. The company has a cash and current ratio of over one times, with a net debt to equity of 69% and an interest cover of 3.9 times. All these figures represent a good business in terms of financial fundamentals. In terms of relative valuation, 7C Solarparken trades at a 4%, 30% and 76% discount to regional peers for its forward P/E, EV/Ebitda and P/B ratios, implying that it is one of the more attractive pickups in the industry.
Sentiment-wise, there is one “buy” call, one “hold” call and no “sell” calls for 7C Solarparken from analysts with an average target price of over 90% its current trading price of EUR1.87. Based on our in-house valuations (see Charts 1a and 1b), we think the fair value for the company is EUR2.29.
Disclaimer: This article is for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This article does not take into account an investor’s particular financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor's own discretion and/or after consulting licensed investment professionals, at their own risk.
