Germany

Germany

Spotlight on PNE after Morgan Stanley offer

Developer PNE Group may soon be swallowed up following interest from a major global infrastructure investment company on the back of a promising growth strategy. Sara Knight takes a look at the numbers.

Prime for a takeover: PNE has developed over 5.5GW of onshore and offshore wind capacity worldwide
Prime for a takeover: PNE has developed over 5.5GW of onshore and offshore wind capacity worldwide

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Morgan Stanley Infrastructure Partners (MSIP), acting for its North Haven Infrastructure Partners III fund, is in talks "on possibilities of co-operations and investments that would include a takeover offer", PNE announced in late August.

First Berlin Equity Research (FBER) said MSIP's interest in Cuxhaven-based PNE shows it wants to rapidly build its asset base by acquiring renewables developers' project pipelines. PNE's international onshore wind project pipeline stood at almost 5GW as of June 2019.

Purchasing a project pipeline rather than commissioned projects — for which competition is growing — offers "a chance to capture margins", said FBER.

It judged MSIP's non-binding offer of €3.5-3.8/share to be in line with its own valuation, but would have expected a takeover offer "at a premium" to their estimate. PNE's shareholders could also judge the initial offer to be inadequate. 

The investment firm’s global strategy involves buying private infrastructure assets that are undervalued, for instance, because they are being operated or managed "in a less than optimal manner", and favours assets with potential for scalable expansion through organic growth or follow-on acquisitions.

PNE seems to fit the bill.

The plan

The German company launched its six-year "scale-up" strategy in 2017, which plans to turn the company into a provider of clean-energy solutions, with the aim to increase earnings "and significantly reduce volatility in annual results".

With activities in 14 countries on three continents, PNE has 2.9GW of onshore wind development under its belt. It also sold eight German offshore wind projects totalling 2.64GW, and claims to be second largest wind energy O&M manager in Germany, with 1.5GW under contract.

But project development is a fluctuating business. PNE’s net profits over the past six years have swung from a €13-million loss in 2014 to a profit of €69 million in 2016, and back down to a €1 million loss in 2018.

And while wind farm development remains its core business, PNE is looking for more stability by expanding its services.

The goal is to raise its operational management portfolio to 2.2GW, developing combined wind and solar projects, energy storage and power-to-gas solutions, and taking the company into new markets.

It recently entered Latin America through its Panama "hub" — established when it bought five wind projects totalling 352MW at an advanced planning stage in February 2019.

By 2023, the "scale-up" programme is targeting earnings before interest and taxes (Ebit) 30-50% higher than the 2011-2016 average of €29 million, which would equate to €43.5 million.

This is on a par with Ebit in 2013, less than half the 2016 EBIT of €97 million, but five times higher than the Ebit in 2018 of €7.8 million.

For 2019, PNE expects Ebit to reach €15-20 million, growth that presumably looks pleasing to MSIP.

Liquidity

Still, MSIP's desire for PNE's attractive project pipeline and growth strategy seems greater than PNE's need for an outside investor.

The developer said that in 2018, it repaid a €100 million bond with 8% interest as scheduled, issued a €50 million bond at 4% interest, and secured a €25 million loan to finance the equity capital portion of its wind farms. 

In March, CFO Jörg Klowat stressed that overall, available liquidity including credit lines stood at €157.8 million.

This means implementation of the scale-up plan, ongoing business operations and the development of a 200MW wind farm portfolio in 2020, which will be offered to the market when completed, are fully financed.

"Thanks to our high equity ratio, we also have good prerequisites for financing new projects," he said.

Yet PNE has not signalled it is averse to its shareholders agreeing to a takeover, even though management control would be affected.

MSIP said its "hands-on" approach to creating value is by taking complete control, enabling it to "execute planned operational improvements" and, over the medium-to-long-term, "build and exit a self-sufficient asset".

PNE chief executive Markus Lesser commented: "We aren't actively looking for a buyer, but are in principle open, if someone puts such confidence in us."

Five PNE shareholders each have over 3% of the company, the largest being Universal Investment Gesellschaft with 12.18% as of July 2019 — the remaining 73% is in free float.

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