2G energy AG (DE:2GBG) is the third largest provider of gas driven CHP (combined heat power) plants in Germany. It has diversified its activities so that it is less exposed to changes in the regulatory environment for renewables and CHP in Germany through expanding export markets and service revenues. Gas powered systems are becoming increasingly important as sources of power when output from solar and wind systems is low. The stock represents a low-risk play on the shift to decentralised, decarbonised modes of power generation.
Supportive regulatory environment in FY16
Sales rose by 14% year-on-year to €174.3m during FY16. Sales of biogas systems within Germany accounted for a significant proportion of this increase, supported by a change in the legislative environment that promoted more flexible systems able to balance fluctuating output from wind and solar generation.
Exports grew in FY16 by 28% year-on-year to 30% of total sales. Service revenues increased by 10% year-on-year to 33% of total sales, providing a useful buffer against fluctuations in demand for CHP plants. EBIT margin development was held back (3.2% vs 3.1%) as a result of higher than expected costs associated with individual major projects and spikes in production. The profit before tax result includes a €1.8m provision for unresolved tax issues.
Good start to FY17
During Q117 new order intake doubled to €29.4m, resulting in an order book totalling €111.1m at end April compared with €88.0m a year previously. Around half of the order book relates to exports. The strong order book and sustained Service revenues support management guidance of €160-180m revenues during FY17. Since management has taken steps to address costs, management’s guidance of 3-5% EBIT margin appears reasonable.
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