In a recent earnings call, Solaria (SEYMF), a prominent renewable energy company, reported a 22% increase in generation and a 6% increase in sales for the first quarter of 2024. The company also announced a record-breaking EBITDA of €41 million. Solaria is making strategic moves by entering the data center and artificial intelligence sectors, leveraging its infrastructure portfolio.
The company has secured permits for 155 megawatts of grid access for data centers and is in discussions for a global agreement with major industry players. Solaria confirmed a €30 million gain from asset rotation and the sale of 40% of a 500-megawatt portfolio, aiming to reduce merchant exposure to 20% by year-end. They are also constructing 1.4 gigawatts of projects with secured financing and are preparing for a strategic update in energy and digital transition in September.
Key Takeaways
- Solaria reported a significant increase in generation and sales, with a 22% and 6% rise, respectively.
- The company achieved a record EBITDA of €41 million.
- Plans are underway to cut merchant exposure by half within the year.
- Solaria is venturing into the data center and AI markets, with 155 megawatts of grid access already permitted.
- Talks with major industry players are ongoing for a potential global agreement.
- Asset rotation resulted in a €30 million gain, and 40% of a 500-megawatt portfolio was sold.
- Solaria is on track to reduce merchant exposure to 20% by the end of the year.
- Construction of 1.4 gigawatts of projects is in progress, with financing in place.
- A strategic update is scheduled for September, focusing on energy and digital transition.
Company Outlook
- Solaria exceeded Q1 objectives and is aligning with consensus expectations for 2024 EBITDA.
- The company is working on a 500-megawatt disposal and connecting assets to the grid in 2024, subject to external factors like grid developments and permits.
- Ongoing negotiations with off-takers for a 400-megawatt project package, including a 10-year PPA at €40 per megawatt hour.
Bearish Highlights
- Challenges with connection delays due to external factors have been acknowledged.
- The sale of early-stage development projects, while not affecting expansion plans, has undisclosed buyer details.
Bullish Highlights
- Solaria is targeting hyperscalers with a new data center offering.
- The company is confident in achieving some EBITDA from the 1.5 gigawatts under construction this year.
Misses
- Specific timing for the 500-megawatt disposal was not provided.
- Details regarding the buyer of early-stage development projects were withheld.
Q&A Highlights
- Solaria has a financing line with the European Investment Bank, covering 50% of their needs without requiring a PPA.
- The capacity currently under construction is fully financed.
- Investor Relations team remains available for further information.
InvestingPro Insights
Solaria's recent earnings call highlighted a robust performance with significant increases in generation and sales. To complement these findings, let's delve into some insights from InvestingPro that may offer a deeper understanding of the company's financial health and market position.
InvestingPro Data reveals a substantial revenue growth in the last twelve months as of Q1 2024, with a 33.21% increase, indicating a strong expansion in the company's operations. Moreover, the company's operating income margin for the same period stands at an impressive 73.22%, reflecting efficient management and a solid competitive edge in the renewable energy sector.
Despite the positive growth metrics, it's important to note that Solaria's stock has experienced a significant hit over the last six months, with a price total return of -33.53%. This could suggest market volatility or investor concerns that may need to be addressed for future stability.
InvestingPro Tips for Solaria point out a couple of key considerations for potential investors:
1. The company is trading at a low earnings multiple, with a P/E Ratio of 13.59, which could indicate that the stock is undervalued relative to its earnings.
2. Analysts predict that Solaria will be profitable this year, which, coupled with strategic ventures into data centers and AI, could signal a promising outlook for the company.
For those interested in a deeper analysis, InvestingPro offers additional tips on Solaria, which can be accessed at https://www.investing.com/pro/SEYMF. There are 12 more InvestingPro Tips available, providing a comprehensive view of the company's financial status and future prospects.
Remember, you can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, granting you access to valuable investment insights and data to inform your financial decisions.
Full transcript - Solaria CFD (SEYMF) Q1 2024:
David Guengant: Good afternoon, everyone, and welcome to Solaria 2024 First Quarter Results Webcast. My name is David Guengant, the Head of IR of Solaria. I am joined today by Dario Lopez, our Chief Operating Officer; and Fernando Rodriguez, our Chief of Development. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. During this presentation, we'll begin with an overview of the results and the main development during the period given by our COO, Dario Lopez. And following this, we'll move on to Q&A session. I will also highlight that you have to submit all your questions via the web. So thank you very much again. And I will now hand over the word to Dario.
Dario Lopez: Thank you, David. Thank you, everyone, for joining this conference call. Starting with the results or the main highlights of the Q1. We would like first to express our main message of this presentation that we are able to keep delivering growth and profitability even in a low-price scenario. In this case, as you will see, we have increased the generation 22%. We have increased the sales of the company 6%. We have reached an EBITDA of €41 million, which is our record. At the same time, we keep having more and more visibility on the portfolio of new permits. You will see also that we have started a program of pipeline rotation with the sale of some assets, and at the same time, we continue the work to reduce our merchant exposure by 50% before the end of this year. Also very important, Fernando will explain with me the new steps we are taking into the data center and artificial intelligence business. Regarding the highlights of this quarter. First, we would like also to talk a little bit about the CapEx. We have been able to close modules -- the price of the modules at a record low price. We announced last May that we closed the sale -- the purchase of 435 megawatts of modules at €0.0911 million per megawatt, which is up an absolute record of all time. At the same time, we continue working on the PPA market. We see prices in the range of the €40-s, and this allows us to maintain our 12% IRR return target. Entering the results of Q1, as you will see, we have increased the generation of our assets above 400 gigawatts hour, which means a 22% compared with Q1 of last year. And at the same time, we have increased the sales of the projects of more than €40 million. In this, we have around €24 million of energy and €16 million of infra. You will see that even in a very low prices of scenario, we have been able to provide good results. In terms of revenues, you will see we have an increase of 9%, and EBITDA of around 4% additional. In terms of the pipeline development, as you will see, we have around 1.7 gigawatts fully operational. We continue working on the construction of 1.4 gigawatts that we have for all of them with the financing secure, which is also very important to highlight. And regarding the next project, we have another 1.2 gigawatts additional, where we are able -- we have obtained, we have received in the last days new permits, for example, in the case of Oliva 175 megawatts, the Autorización Administrativa de Construcción, the AAC, which provides us more visibility for this. Regarding the remaining portfolio, we continued development on the whole portfolio with the projects of Basque Country, Catalonia and Portugal. Very important, the projects that we have in Italy, where we have a portfolio of almost 3 gigawatts. And as you will see, we are following the same strategy in terms of flagships. This is very important to highlight, because, as you know, with the recent developments of the Italian government, they are also focusing on very large projects, which seems that our strategy is correct in these places. I would also like to highlight the wind situation where we have already installed our measurement tower -- wind measurement tower, improves the advances in this business. In terms of the cash situation, here, you will see that we have continued the investment process with another €45 million of investment. What is very important to highlight here in this slide that it does not include the proceeds of the infra business and pipeline rotation, which means that we -- it's a significant additional revenue of around €20 million that we have received in May. Pipeline rotation, as you know, we have been working on the sale of minority stake in strategic portfolio in the past, especially for the Basque Country projects, where we already sold a 25% stake of a package of 100 megawatts. We are working, as we announced some time ago, on the sale of a package, of between 25% and 50% stake of another 500 megawatts in the Basque Country. This is something that we have already announced. It is very well known. And at the same time, what is new, it has given our capacity to generate new pipeline. We have taken advantage of this capacity to sell some of these assets on some of these pipelines that we consider not strategic. In this case, we have identified 500 megawatts of projects, as we say, is non-strategic, where we are selling between 50% and 100% stake projects located in Spain and Portugal. And all of them, pipelines at a very early stage of development, which means it has not, of course, reached a [ready-to-go] (ph) situation. For this portfolio, we can confirm that we have closed the sale of 40% of it. And this means that we have been able to include in our results around -- €30 million, sorry, €13 million of income. And finally, very important, the part of the PPAs, we are working on the reduction of our merchant exposure. Our objective is to reduce it by 50% before the end of this year. In order to do that, we are working with different utilities. We are negotiating very similar PPAs to the ones we have negotiated in the past. You can see here. All of them, 10-years solar profile for a portfolio of around 400 megawatts, all of them for assets already in operation. And as we have said before, the prices we see, it's around €40 megawatt hour. I will now hand over the word to Fernando.
Fernando Rodriguez: Thank you, Dario. Well, as we have recently informed, Solaria is entering data centers market. Considering our current contest and the difficulties to ensure the grid access for new consumption, we plan to use our own infrastructure's portfolio as high voltage lines, substations, communications with backbone fiber optics and so -- and the power of our green installations to accelerate and boost digital facilities and data centers. As all of you know, artificial intelligence in data centers is going to require large amounts of power and associated energy. For this reason, we have incorporated a specific company in the group for this strategy and we are firmly committed to do it and jointly with our LandCo GENERIA in order to develop our new project portfolio in this sense. In this route, grid access and connection permits for energy consumption have been already granted to Solaria for a total amount of 155 megawatts in new data centers. Also, we are managing additional portfolio, additional pipeline, that, for the moment, is close 1 additional gigabyte. Additionally, we are, up to now, in contact and also keeping conversations well with the main players in the industry as hyperscalers and working with all of them in the possibility of a global agreement for this new strategy. We consider that Solaria is going to be a key player considering our infrastructure portfolio that includes solar and also hybridization, including wind, batteries, power and communications, that will allow Solaria to develop iconic clusters for that -- for that purpose, sorry, including these new infrastructures as data centers. And regarding all of this, I take the opportunity to inform about our strategic update in energy and digital transition that will take place in September. I will now hand over the word to David.
David Guengant: Thank you, Fernando. I will now open for Q&A session. And once again thank you for your time. [Commercials]
A - David Guengant: The first question now coming from Jorge Guimarães from JB Capital. First question is, how much asset rotation gains were booked in the first quarter 2024? And what are our expectations for asset rotation gain in 2024?
Dario Lopez: In terms of the asset rotation books, we are around €30 million, in net, around 11.5%. In terms of the rotation, we will continue with the process. I mean, you know we have suffered low prices in the market, but we have been able to compensate, to provide good results using a capacity that we highlight is to generate a pipeline that is something that we haven't done in the past and that we are able to do now. We feel comfortable with the situation. We feel comfortable with the results and also with the consensus of the market.
David Guengant: Second question coming from Fernando Garcia from RBC. Can we clarify a split now in the sales -- from sales and infra sales? Can we give us the split? And second question is that, personnel expenses and OpEx is a good figure for the following quarters, or if we expect some increase in personnel expenses and OpEx?
Dario Lopez: Well, in terms of the sales, we have said before, in terms of energy, it's around €24 million, and in terms of infra, it's around €16 million, of which €13 million belong to this pipeline rotation process. In terms of the OpEx, you know that the first we have suffered the impact of the generation tax that is something we have in the past, in the last quarter. And yes, I mean this is a reasonable number and we are not expecting any relevant increase in the OpEx.
David Guengant: Next question are coming from Enrico Bartoli from Mediobanca (OTC:MDIBY). How much capacity was fully sold? And how much of this capacity -- sorry, is -- were only minority stakes have been disposed? So, how much capacity has been fully sold? Or is there is minority in this context?
Dario Lopez: In this case, it's the full sale, it's -- there are no minority stakes in this case. It's a 100% sale of the -- it's 40% for 500 megawatt, 100% sale.
David Guengant: And next question is also from Enrico, which could be the timing for reaching the total 500 megawatt disposal?
Dario Lopez: I mean it's difficult to say, but I mean we are working on the process. I mean, it's -- always the sale process are complicated and takes time, the due diligence and everything. So, we prefer not to give accurate dates.
David Guengant: Next question are coming from various analysts Eduardo González from Grupo Santander (BME:SAN), Fernando Garcia from RBC or Daniel from [indiscernible]. If we can give some color regarding the EBITDA for this year? If we are comfortable with this consensus expectation for 2024?
Dario Lopez: Yes. I mean, as we have said before, this is Q1. Even in this very complicated scenario with low prices, we have been able to reach and even surpass the objectives we have for this quarter. And I would say this is a step-by-step. We will keep on working to be in the consensus.
David Guengant: Next question is coming from Tomás Reis from CaixaBank. Have we changed our strategy to maintain a level of 70% security and 30% merchant capacity?
Dario Lopez: Yes, as you will see -- I mean there is not a significant change that we are going to have everything PPA. But as you will see, our objective is to reduce a little bit our merchant exposure. And I will say our objective is to be around 20% by the end of this year.
David Guengant: Next question is coming from a few analysts also. Do we expect to connect to the grid some assets in 2024?
Dario Lopez: We are working on it. As you know, this does not depend only on Solaria. We also depend on the developments on the grid. That is something that we all suffer. And also we depend on the permits of the authorities that usually take a long time. We always say it's not only that you finish the project, you need between one and now even more than four months to get the project connected once it is finished.
David Guengant: Next question is coming from Manuel Palomo from BNP Paribas (OTC:BNPQY). Can we please give some additional detail about the asset sale, up to 500 megawatt of non-core pipeline? What type of project are we talking about? Who is the buyer, industrial, financial, utilities?
Dario Lopez: Well, I mean, we cannot disclose the name of the buyer at this moment. What we can say that this -- we have explained before, we have a huge capacity to generate pipeline. That's something that we have proven before, especially quality pipeline, a pipeline that is possible to execute. Well, we have taken advantage of this capacity to leverage our results, okay? In this case, what we are also selling are projects in a very early stage of development, good quality projects, but in an earlier stage. So, it's not affecting at all our expansion plans. So -- and this is what we can tell, okay?
David Guengant: Next question are coming from Jorge Alonso from Bernstein. For new capacity in 2025, 1 gigawatt at what stage the financing is? Would the bank require PPA in advance and a capacity addition in 2024, 2025 or 2026?
Dario Lopez: Okay. In terms of the financing, we are -- I mean, we prefer to start receiving the permits. We have suffered, in the past, the delays from the government. They postponed six months, the work of the permits from January to July. We prefer to see the permits before going into the financing stage. The good news is that we have already received some of these permits and we are receiving, hopefully, in the next weeks, the remaining permits. And from that moment on, we will start with the financing process. The financing process, as you know, we have a line with the European Investment Bank that covers 50% of our financing needs, including all these projects. And of course, this financing line does not require a PPA. Another point is that we will start negotiating and everything, but we do not need a PPA to finance these additional projects.
David Guengant: In any case, just to be clear, all the capacity that is today under construction is already financed, okay? We have 1.7 gigawatts in operation, 1.5 gigawatts under construction, and all this capacity is already fully financed. Next question are coming from some analysts regarding PPA. If we can give some more detail on what we are doing or what we want to do this year regarding PPA and duration of the PPA and price of the PPA we are seeing today in the market?
Dario Lopez: Yes, in terms of the PPA, we have significant experience in this market. We are very well known between the off-takers, especially the large ones. We are negotiating with them, especially, a large package of projects, which are projects already fully operational with no construction or connection risk. It's a package of 400 megawatts. The PPA we are negotiating for them is a 10-year PPA. In some cases, we are working on solar profile, in other cases, our buyers produce. Well, the prices we see are around €40 megawatt hour. The idea is to close in the next -- in the following weeks.
David Guengant: We have some -- also some questions from a few analysts regarding the data center. On data center new offering, do we target network operator, locator, hyperscaler? With hyperscaler, don't we think we have the balance or not? If you can make some comment on that?
Fernando Rodriguez: Well, as we said, we are working on deploying this new portfolio. We are evaluating different possibilities and we are trying to focus in hyperscaler type in order to optimize the high volume or high power kind of project in this case, okay?
David Guengant: So, maybe a last question. Can we give maybe some more color about the capacity that is today under construction and the time of the connection? And if we will get EBITDA in 2025 from these 1.5 gigawatts that are today under construction?
Dario Lopez: Well, of the projects we have here, in some cases, we have very advanced status of construction, for example, in the case of Centaurus, some projects of Castile and Leon, also Peralveche. Of all these, for example, these projects, they already have completed most of the connection work. We have completed the service stations. We have made a huge effort for the connection, but as I say, this does not depend only on us. I mean it depends also in Red Eléctrica that they have to be able to develop the projects. They also need permits from the ministry, which has not been providing permits in the last month. So, it has been taking a little bit longer than expected, not only for Solaria but also for Red Eléctrica. Of course, we are trying to be able to provide some EBITDA -- to get some EBITDA of these projects this year. We're working on it.
David Guengant: So, I think we are done for this -- today's call. So, thank you very much. And I let Dario just close this call.
Dario Lopez: Thank you very much for being part of this conference call. As always, our Investor Relations team will be available for any additional information you may require. Thank you, and have a great afternoon.
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