Baywa AG Vink. NA O.N. (DE:BYWGnx) is changing its business model so that a higher proportion of revenues are derived from projects, thus adding value and reducing the exposure to fluctuations in demand for agricultural inputs/outputs, heating and fuel oil or building materials. The change is most marked in the Energy segment, with renewables activity – predominantly the sale of wind and solar projects – constituting 42% of group FY18 EBIT. Management is replicating this in other segments, with a JV developing greenhouses in UAE and two housing construction projects in Bavaria. As part of the transition it is selling non-core activities including a stake in Kartoffel-Centrum Bayern, a potato trader and Tessol, its petrol station business.
Energy segment drives H119 results
Group revenues rose by 1.7% year-on-year to €8.4bn driven by customers taking advantage of cheaper heating oil prices. Group EBIT increased by €20.1m to €52.2m, close to the historic average. Strong heating oil sales and international expansion of photovoltaic component sales supported a €10.8m rise in Energy EBIT to €12.1m. Agriculture EBIT rose by €1.2m to €53.6m as improved trading of produce in Germany and above-average margins for fertiliser and seed offset weaker international trade in grain and oilseed. The results from the Building Materials and Innovation/Digitalisation segments were similar to H118. There was also a c €7m benefit at the EBIT level from the switch to IFRS 16.
Strong renewables pipeline
Management has not provided any guidance for FY19 because the exact result is dependent on the weather. However, it is confident that both the Agriculture and Energy segments will show a significant year-on-year increase in earnings, with Building Materials’ earnings remaining at prior year levels. Importantly, the Renewable Energies business is working on projects totalling over 2.7GW globally, 660MW of which are scheduled for sale during FY19, predominantly in Q419. The pipeline was augmented in May 2019 by the acquisition of Forsa Energy’s UK business which secured access to a 350MW pipeline of onshore wind parks in Scotland. Segmental growth is being supported by the issuance of an unrated €500m green bond in June 2019. Additionally, management is planning a private placement in renewable energy subsidiary, BayWa r.e., details as yet undisclosed.
Valuation: Dependent on renewables financing
The proposed private placement in BayWa r.e. precludes our forming a view on valuation until further details of the financing arrangements are available.
Business description
Two-thirds of BayWa’s revenues come from the trade of agricultural produce and equipment within Europe and globally. It also trades oil and lubricants in Germany and Austria, has an international renewable energy business focused on solar and wind farms and is a retailer of building materials in Germany.