[Eco-Investing] The Great Energy Transition Era! 1 : Is it appropriate to invest in Nexans?

[Nexans] We are in the midst of an energy transition. There is a consensus that we cannot continue to use conventional fossil fuels in the face of an impending climate crisis.

That’s where the word “renewable” comes in. Renewable energy refers to non-polluting energy sources such as wind and solar, rather than carbon-emitting fossil fuels. In addition, hydrogen and nuclear energy are also considered to reduce carbon.

The December 2023 agreement at the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28) identified renewables, nuclear power, and hydrogen as the primary means of carbon reduction. The international community has joined hands to make carbon reduction a reality through the Great Energy Transition.

In this context, industry is also rapidly shifting to decarbonized energy. Not because ‘they want to’, but because ‘they have to’.

The energy transition is also making some waves in the investment market. One company in particular is rising to prominence in the renewable energy industry. Nexans is based in Paris, France. Why are investors looking at it now?

Nexans?

Nexans is a global company focused on the cable and fiber optic industry. It is a global company with more than 50 offices on every continent.

Nexans operates in four business areas: Building & Local, High Voltage & Projects, Data & Telecom, and Industry & Solutions.

The areas that currently show the most potential and market value are related to the renewable energy industry, such as offshore wind and power infrastructure networks.

What is the future value of Nexans?

We mentioned earlier that the renewable energy industry is growing. This means that electricity production will increase. Electric cars, heating, and other aspects of our daily lives increasingly depend on electricity. So, if we need more electricity, we also need to increase the bandwidth of the power network.

To increase the bandwidth of power networks, it is important to have cables that can deliver power from offshore wind farms and solar power without any problems. Nexans will connect solar power from Africa and the Middle East to Europe via a submarine cable that will be 1,000 kilometers long, 3,000 meters deep, and weigh 9,000 tons.

Nexans CEO Christopher Guérin called it “an alternative to the Russian gas pipeline” in an interview with France Info.

In addition, the new energy supply will require work to replace the aging power grid. The European Commission has decided to invest 584 billion euros in this work, and Nexans, along with its major French power partners, will work on replacing the power network over the next five to 10 years.

Bank of America recognizes the value of Nexans investments

Last summer, Bank of America, a leading US financial holding company, reiterated its positive view of Nexans shares. It raised its rating by two notches from ‘underweight’ to ‘buy’. It raised its price target to €100 from €65.

This was accompanied by the analysis that “Europe is a market with a growing need for local industrial content.” Bank of America noted that more than 90% of Nexans’ high-voltage orders consist of submarine cable connections and offshore wind turbines, which should boost the group’s operating profit.

Not the best in the world, but undervalued

In its industry, Italy’s Prysmian and the Netherlands’ NKT Holdings are currently the world leaders. Nexans is valued at about 40-45% below these companies. Nevertheless, Bank of America is bullish on Nexans’ future because of its underestimated exposure to the energy transition.

In 2021, Nexans released a new strategic plan to keep up with the times. According to the plan, the company is expected to record sales of €6.5 billion by 2024, with an operating margin of 10-12%. The plan was to expand the scope of the company’s activities into the field of energy transition, and the choice was right on target.

“We are moving from fossil fuels to renewables. You can say we’re not ready, but we have to do it,” says Guérin, who is optimistic about the future of the grid industry in the energy transition.