Growth in Qatar Electricity and Water Company (QEWC) 2022 should be fuelled by improved power and water offtake, especially during the second half of 2022, given the FIFA World Cup Qatar 2022, QNB Financial Services (QNBFS) has said in a report released recently.In the report, QNBFS said, “We continue to like QEWC as a long-term play with a relatively defensive business model. The near-term impact of the COVID-19 pandemic was muted on QEWC’s business model as the company is paid based on power and water availability and is relatively unaffected by the vagaries of end demand.”Highlighting QEWC’s recent agreement to purchase the 40 percent of Nebras Power it did not already own for $530 million, the report said, “We believe this deal, to be financed by a $550 million bank loan, could be slightly accretive around 3 percent over 2022-2026 and will update our estimates once the transaction closes. However, we have already incorporated this acquisition into our DCF-based valuation model.”“QEWC still enjoys decent EBITDA margins and dividend/FCF yields. As expected, the UAH water expansion was commissioned during the first quarter of 2021. Long-term catalysts including additional domestic expansions like Facility E in 2024-2025 and others will further support the company’s growth,” it said.Outside Qatar, the report said, “Nebras remains on the hunt for growth and has plans to increase its capacity significantly, which currently stands at more than 2.1 GW (+6.4 GW gross). Given that Nebras will become a 100 percent-owned subsidiary in the second half of 2022, we believe additional disclosures regarding its growth prospects could help fuel increases in QEWC’s earnings estimates.”Commenting on the company’s second-quarter result, the report said, “QEWC reported net income of QR295.9 million in the second quarter of 2022, down 28.3 percent YoY and 23.9 percent QoQ, below our estimate of QR362.9 million. We note the company recorded a QR86.1 million loss on land held for sale in Lusail and if we exclude this one-off item, the second quarter 2022 earnings would have come in at QR382 million, 5.3 percent above our estimate. Overall operating metrics were in-line with our model.”“Total revenue (power+water+lease interest) of QR635.4 million, a growth of 5.9 percent yoy and 12.5 percent qoq in the second quarter of 2022 was bang in-line with our forecast of QR629.8 million. Power revenue (49 percent of sales) of QR308.7 million (17.9 percent yoy, 21.3 percent qoq was moderately below our forecast, while water sales (49 percent of top-line; down 1.1 percent yoy and up 6.3 percent QoQ slightly exceeded our estimate,” it said.The report said, “The JV income took a hit on account of a QR113 million net impairment loss on Nebras’ five solar plants located in Ukraine. Gross margin came in at 45.9 percent in the second quarter of 2022, which was lower than 51.8 percent posted in the second quarter of 2021 and 49.1 percent reported in the first quarter of 2022. EBITDA margin came in at 41.1 percent in the second quarter of 2022 against 47.1 percent in the second quarter of 2021 and 42.2 percent in the first quarter of 2022.“JV income decreased to QR73.1 million from QR166.3 million in the second quarter of 2021, down 56.1 percent yoy and QR92.4 million in the first quarter of 2022, down 20.9 percent qoq. As mentioned above, QEWC management assumed a worst-case scenario and impaired its entire investment in five solar plants (via Nebras) in Ukraine. “In the future, the company may be able to reverse this QR113 million impairment if the situation in Ukraine improves. If we exclude this impairment, JV income would have come in at a healthy QR186 million in the second quarter of 2022,” it said.
