You may not have heard of Alfen. At around EUR 1bn in market cap, it isn’t (yet) a stock market giant. However, it is at the heart of several megatrends related to the green energy transition, meaning it is perfectly positioned to continue its recent stellar growth for years to come.
Electricity grids are undergoing a profound change as part of the vital transition towards greener energy generation and supply. Gone are the days of one mega scale, centralised grid powered by a few large power plants. Smart grids are more decentralised, with power being fed in from many smaller scale renewable sources and with many private grids also existing independently. They use digitalisation to enable two way interaction with the end user and overall, make the system more efficient, reliable and safe. Alfen terms itself as being “at the centre of the electricity grid” and its three main business lines, smart grids, Electric Vehicles (‘EV’) charging and energy storage solutions, provide key solutions to facilitate this transition.
Alfen’s Smart Grids segment, which is its largest by revenue, makes, installs and services substations and microgrids, as well as connecting and servicing energy parks. Huge investments are being made in grids worldwide to overhaul outdated infrastructure and bring them into the 21st century. Alfen’s software and hardware capabilities make it a key player in the transition. These are long term investments which often also have ongoing service elements to them, providing an excellent opportunity for sustained revenue growth.
What makes Alfen unique is its unrivalled expertise in combining solutions from its different segments, resulting in opportunities to cross-sell and generate higher revenues and margins. For example, setting up a new EV charging station takes more than just sticking a few chargers in the ground – they need to be hooked up to the grid. As a leader in both EV charging stations and connecting one part of the grid to another, Alfen has a clear advantage in being able to offer an end to end solution here. This strength of proposition was recently demonstrated when Alfen became the preferred EV charging point supplier for Elexent, a subsidiary of Renault that is looking to roll out charging infrastructure across Europe.
Now let’s focus on the numbers behind this story. Last week Alfen released blockbuster Q2 results which sent the shares soaring. The fact that it managed to grow H1 revenues by close to 50% year-on-year, despite the difficulties brought about by COVID underlines the structural tailwinds driving the business. Growth was strong across all segments but the 154% growth in EV charging really caught the eye (23% in smart grids and 67% in energy storage wasn’t bad either). With the company anticipating the number of EV charging points installed annually across Europe to more than quadruple by 2025, there is clearly the potential to achieve exponential growth over the coming years
Such fast growth from smaller companies often comes at the expense of margins but despite investments to grow the business and additional costs from COVID, Alfen was able to significantly increase margins as well. Crucially, management expect this rate of growth to be maintained in the second half of the year, as they continue to see strong momentum in winning new business and have had no order cancellations as a result of COVID.
There remains a huge opportunity for Alfen to continue this impressive growth as it expands further throughout Europe. Energy systems are becoming smarter, more interconnected and more complex, effectively raising barriers to entry for companies in the sector and making Alfen’s market-leading expertise and ability to provide end to end solutions all the more valuable. The company’s shares have been on a fantastic run so far this year but looking out to the long term, it’s easy to see why investors are so excited about the potential for Alfen to become a real giant in years to come.
Author: Iain Snedden is an investment specialist in the Equity team at Aegon Asset Management. To find out more contact your financial adviser.
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