As flagged at the 9M16 results, due to factors well beyond management control – namely lower solar radiance, currency movements and spot power prices – FY16 was a less favourable year for Ellomay Capital Ltd (NYSE:ELLO). The over 20% drop in reported EBITDA meant the company was loss making for the year. We view these headwinds as one-off factors and, due to Ellomay’s track record on cost control, actually increase our earnings forecasts for FY18 (FY18 reported EBITDA up 7.4% versus old forecasts) and afterwards. A weaker euro means we reduce our FY17 earnings in US$, but our revenues are only marginally different at constant currency. Higher cash flow taken together with the same valuation methodology means we increase our fair value per share to $10.93, up 4.7% versus our last note, which offers 31% upside.
Strong cost management as headwinds bite
It was encouraging to see Ellomay’s management cushion the effect of difficult operating conditions by controlling costs. Gross profit was only down c $400k, while revenues decreased by c $1m y-o-y. Cost increases such as that in G&A were due principally to investment in new projects. Manara alone accounted for some $1.8m of costs in FY16, which should bring future returns for shareholders, plus future costs are likely to be capitalised, reflected in our increased FY17 estimates.
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