End of November Tion announced its entry into the battery market, suggesting the company is executing on its new strategy announced last summer.

The 8 MW / 9.3 MWh battery energy storage system (BESS) was acquired for c. € 5.8m (£ 5m) and is 100% equity financed. The battery is currently under construction and will be connected directly to the grid during H1’23. According to the company, the project should yield an unlevered equity IRR of above 8%. Possible future project debt of 30% would increase the equity IRR by 50bps (eNuW) revealing future upside potential. On the second page, we give more colour on the different revenue streams.

Indeed, the battery market looks highly attractive due to the strong achievable equity IRRs. We expect battery projects to yield better returns than wind and solar parks that achieve equity returns of c. 4-8% (eNuW). Tion is set to provide more detail on the project‘s unit economics in its H1‘23e reporting.

Furthermore, Tion and Clearvise are in ongoing discussions regarding the intended sale of Tions’ 159 MW portfolio to Clearvise. The agreed upon equity valuation for Tion’s portfolio is € 145m to € 177m depending on different price scenarios. We value the portfolio at € 168m, meaning the range looks largely fair. To finance the transaction, Clearvise should issue at least 27m new shares and hand them over to Tion, giving the company a 40% stake in Clearvise (vs currently 22%). While the cash component will depend on Clearvise’s share price when the deal closes, we estimate the component to range between € 77m and € 99m based on an assumed € 161m transaction value (ie midpoint of the valuation range) and the 6-month high & low of the Clearvise share.

The market currently values Tion at only € 112m, suggesting a substantial undervaluation, considering that even on the low end the portfolio would be valued at € 145m in the transaction (note: Tion will hand over all of its project debt with the sale). At the same time, Tion currently owns 22% of Clearvise (ie pre deal) worth € 35m AND has a 5GW project pipeline plus the battery project.

With this, the transaction nicely underpins our BUY recommendation with a new PT of € 45.50 (prior: € 44.00) based on SOTP.

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