Afcon Renewable Energy Seeks Billion Shekel Valuation Ahead of IPO

Afcon Renewable Energy is preparing for an initial public offering (IPO) with a target valuation of one billion shekels, a significant increase from its valuation just eight months prior. In January, a planned merger with Sunflare was called off, at which time Afcon was valued at 190 million shekels. Towards the end of those negotiations, Afcon itself suggested a valuation closer to 250 million shekels. The current target represents a roughly fourfold increase from Afcon's own estimate in January and more than a fivefold jump from the merger deal's valuation.

The company's growth is attributed to several factors. Afcon has expanded its operational capacity, now managing approximately 275 megawatts (MW) of revenue-generating projects in Israel and Europe, up from about 80 MW when the Sunflare memorandum of understanding was signed last summer. Additional projects are in development, including a 60 MW solar project in Poland, 211 MW-hours of storage in Israel, and 500 MW-hours of storage in Europe. The company also has a pipeline of about 40 MW in advanced development, 50 MW of wind in Poland, and 1 gigawatt-hour of storage projects across Israel, Europe, and the US.

Furthermore, the structure of the planned IPO includes assets previously held by institutional investors. Afcon established a fund with Migdal and Menora for renewable energy investments in Europe, initially holding a 20% stake. Under the new structure, Migdal and Menora will receive shares in the publicly traded company in exchange for their rights in the fund, effectively bringing more assets into the public entity.

Despite these developments, questions remain about the one billion shekel valuation. While the total portfolio is approaching 770 MW, a significant portion is still in planning or construction phases, not yet generating revenue. The article notes a substantial difference in value between operational MWs producing cash flow and those in development. Afcon's first-quarter earnings show that its renewable energy division contributed only 1.9 million shekels in EBITDA, while the entire group reported a net profit of 25 million shekels, with most profits coming from other divisions.

The valuation also appears high compared to Afcon Holdings' current market capitalization of around 3.5 billion shekels, with the renewable energy arm alone representing nearly 30% of the group's total value. The article suggests that the one billion shekel valuation prices in a significant amount of future growth that has yet to be realized, questioning whether investors will pay a premium for projects still in development and requiring financing and grid connection.