(BFM Bourse) – The American bank sharply raised its opinion on the cable manufacturer on Monday, going from underweight to buy, with a price target raised to 100 euros against 65 euros previously.
Since the start of the year, Nexans has clearly underperformed the SBF 120 index, with a drop of 6%, while the SBF 120 has gained more than 11% over the same period. But for Bank of America, now is the time to get more positive about the title of the cable manufacturer led by Christopher Guérin. The American bank has thus raised its opinion on the action by two notches from “underweight” to buy with a price target also raised to 100 euros against 65 euros previously.
This largely supports the title, Nexans winning 8.5% around 2:15 p.m., the second largest increase in the SBF 120 on Monday.
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Strong positioning in high voltage
For Bank of America, Nexans represents the best way “to play the energy transition” within the world of cables. The bank underlines the group’s exposure to the growth of expenditure in electrical infrastructure networks and offshore wind power (at sea), which represent around half of its gross operating profit (Ebitda). Citing Bloomberg New Energy Finance (BNEF) forecasts, the bank says grid investments could grow from around $306 billion in 2022 to around $591 billion in 2030.
Bank of America also highlights the group’s key positioning in the high voltage electricity market in the United States, where Nexans has a strong industrial footprint, notably with its Charleston plant which the group recently extended to cope with the increase in demand for offshore wind power.
All this in “a market where the requirements for local content are growing”, argues the establishment.
The bank also notes that more than 90% of Nexans’ order book in high voltage is made up of submarine interconnectors and offshore wind turbines, which should help the group’s Ebitda margin.
An attractive valuation
Bank of America’s latest reason for optimism is linked to the group’s valuation, which the bank considers “attractive”, while Nexans underperforms its two comparables, namely the Italian Prysmian and the Dutch NKT by around 40- 45% over one year.
This leads Bank of America to think that the market has already largely integrated the risks which relate in particular to the mages of the energy production and transmission activity. And that it underestimates the group’s exposure to the energy transition.
The cable manufacturer presented a new strategic plan in 2021 which should lead it to become a “pure player” in electrification by extending the scope of its activities in this area, which will represent between 5.5 billion and 6.5 billion euros in revenue in 2024.
To carry out this transformation, Nexans will rotate assets through disposals and acquisitions. This plan should enable the group to generate an EBITDA margin (gross operating surplus) of between 10% and 12% in 2024, compared to 8.9% in 2022.
Julien Marion – ©2023 BFM Bourse