Large Corporate Moves For Solaria, But Stock Overvalued

Solaria recently entered the Ibex-35

Solaria has closed a PPA agreement, in its financial form, with Shell Energy. The agreement will have a 10-year duration for a total of 300 MW or 570 GWh/year through the production of 6 plants expected to be connected during 2021. This PPA is the largest signed by Solaria to date, and the first in its financial modality. The price of the MWh in the agreement has not been made public, but it could be in the range 33-36 Euros/MWh. This is the last reference made by Solaria in its Capital Markets Day in September last year.

Although this agreement is an important milestone for Solaria given the size of the transaction and the customer, for Intermoney analysts the valuation of the company is not justified.

“With a Value Enterprise of around 3.66 billion euros and assuming the weighted average of euros/MW M&A in the sector (830k Euros/MW), the market would be discounting more than 4.4 GW. According to Solaria’s guidance, this would not be reached until 2024-25. So one more factor that makes us reiterate our Sell stance on Solaria.”

Bankinter’s analysis team is also moving in the same direction with respect to Solaria. The experts believe the stock price was correctly valued in the range of 15-16 euros/share up until the recent entrance in Solaria’s share capital of iShares, Invesco and the increase in BlackRock’s holding. Together they have acquired 7.6% of the capital in recent months and have revalued the price of the company by 44% in the last three months (+239% in the last 12 months). These movements have put Solaria’s price at 11x Price/Book Value 2021 and 49x Enterprise Value/EBITDA, multipliers that they qualify as “unsustainable”.

Renewable energies are fashionable, with a substitution of older thermal energies by solar and wind plants. In addition, and in Spain’s case, there is interest in the upcoming renewables auction (January 26th). At this auction 3,000 MW of new power are expected to be awarded (3% of the installed capacity in Spain), with solar photovoltaic energy seen winning most of the auctioned capacity. Solaria (and also Solarpack) has the advantage of being one of the few listed companies dedicated exclusively to solar photovoltaic generation (Grenergy and Audax combine this technology with wind power). The company recently entered the Ibex-35, which obliged indexed funds to acquire shares.

The company expects to increase its installed capacity from 75 MW in 2018 (at 9MTH’20 it had 440 MW) to 1,375 MW at the end of Q1’21 and 3,323 MW in 2023. Bankinter estimates that it will invest 1.3 billion euros for this (0.4 euros/W installed including development costs.)