Nexans: For Bank of America, Nexans is the best way to play the energy transition in cables

(BFM Bourse) – The American bank sharply raised its opinion on the cable maker on Monday, moving from underweight to buy, with a price target raised to 100 euros from 65 euros previously.

Since the start of the year, Nexans has clearly underperformed the SBF 120 index, down 6%, while the SBF 120 has risen 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 maker led by Christopher Guérin. The American bank has thus raised its opinion on the action by two steps from “underweight” to buy with a price target also raised to 100 euros against the previous 65 euros.

This largely supports the title, Nexans gained 8.5% around 14:15, the second biggest increase in 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” in the world of cables. The bank underlines the group’s exposure to the growth of expenditure on 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 investment 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 US, where Nexans has a strong industrial footprint, particularly with its Charleston facility, which the group recently expanded to cope with the increase in demand for offshore wind power.

All this in “a market where demands for local content are growing”, argues the establishment.

The bank also notes that more than 90% of Nexans’ high voltage order book is made up of subsea interconnectors and offshore wind turbines, which should help the group’s Ebitda margin.

An attractive assessment

Bank of America’s latest reason for optimism is related to the group’s valuation, which the bank considers “attractive”, while Nexans is underperforming its two peers, namely Italy’s Prysmian and the Netherlands’ NKT, by around 40-45% over a year.

This leads Bank of America to believe that the market has already largely internalized the risks particularly related to the magic of energy generation and transmission activity. And that it underestimates the group’s exposure to the energy transition.

The cable producer presented a new strategic plan in 2021, which should lead to it becoming a “pure player” in electrification by expanding 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 complete this transformation, Nexans will rotate assets through divestments and acquisitions. This plan should enable the group to generate an EBITDA (gross operating profit) margin of between 10% and 12% in 2024, compared to 8.9% in 2022.

Julien Marion – ©2023 BFM Bourse