• Q3'22 EBIT SEK -8m vs. ABGSCe SEK 36m
• Will aim to lower exposure to construction in coming projects
• Late-stage project portfolio of 1.7 GW

Q3'22 results overview

Eolus had net sales of SEK 111m, below our expectations of SEK 502m, as we had expected more revenue recognition from ongoing projects, particularly Öyfjellet. Öyfjellet is still not fully completed (90% degree of completion), and although management still expects completion before year-end, we believe there is a risk for further delays into '23. The low sales level combined with increasing operating costs resulted in a weaker-than-expected Q3'22 EBIT of SEK -8m (ABGSCe SEK 36m) alongside net profit of SEK -11m.

Changing project accounting

Eolus is aiming for future projects to be sold without having to carry the construction cost in their books. This should result in lower revenue per sold project but with a higher EBIT margin, as the buyers will bear the cost of construction. Moreover, we now expect Eolus to first receive a larger initial payment when selling a project and then receive revenue based on a percentage of completion (as in the sale of Centennial Flats), where revenue equals the project margin (margin after construction costs). The company currently has 1.7 GW in the late-stage development portfolio (whereof ~0.9 GW is already sold) and we expect the majority to be sold in 2024. The exception is the ~0.1 GW solar and battery storage projects, which we believe will be sold during 2023e, as this type of energy project requires less time to develop compared to wind projects. In addition, Eolus has 0.4 GW of wind projects that have started construction but will be sold in Q4'22e or during '23. We lower '22e-'23e EBIT by 18-28% and raise '24e EBIT by 20%.

Demand to remain good

We expect completion of Öyfjellet in Q1'23 with a negative EBIT impact in the next quarters. We continue to see good underlying demand for renewable energy, which should support earnings growth in '23e-'24e.