Amara - All about the valley.
All,
Please find our updated analysis of Amara here
Picking companies in growth sectors, even when temporarily not growing, has the advantage that unforeseen circumstances rarely constitute default risk. If value is lost on the way somewhere, the business will eventually recover it. Add to that: 1) strong market share, 2) scalable cost structure, 3) cost focused management, 4) good liquidity and 5) a 20% running yield for the next two years and you have Amara, a good company with a bad balance sheet that doesn’t suit the cyclicality of its sector. The immediate future may be uncertain, but in the long term it really isn’t.
Investment Rationale:
- We have taken a 5% of NAV long position in Amara's bonds at 52c/€, earning approximately 20% running yield. We estimate we should be receiving at least four more coupons before Cinven are ready to sit down, which should de-risk the position to 30c/€ for a company that should not need extraordinary amounts of fresh cash then.
- While we are putting the demand trough into 2026, the down cycle could take longer. However, there is also a good chance that the renewables market will fare much better than we expect. In the long-term renewables are a growth sector and an investment in Amara will generally be lifted by that tide - even if our predictions prove inaccurate. We like good businesses with bad balance sheets, even if they can be volatile from time to time.
- On our base case, the bonds currently create the company at debt carrying capacity, allocating zero value to the equity portion of a 2026 EV. Amara's cost position is relatively flexible. While the first cost savings exercise is targeted at middle and back-office, its logistics personnel is primarily tied to volumes, which are generally how MW price deflation translates if MW volumes are held constant (more powerful panels).
- On the downside, there are no assets for Cinven to hide and the SSNs are the undisputable fulcrum. A coop agreement does not even seem necessary to fend of any LME. At the time of a D/E swap, Amara may only produce very little cash flow, allowing for less than the 50c/€ reinstatement we are envisioning today.
- On the upside, Amara has two years before negotiations and by that time the trough is probably behind us, allowing for a multiple expansion on which to value the business / price the refinancing.
Key Insights:
- Management has acted more decisively than expected to trim the cost base, acknowledging that volume effects are largely uncontrollable and cost reduction is the main lever (Current Trading).
- Average solar prices per MW decline ~15% p.a., driven by efficiency gains. However, panel prices fall more slowly, and stable MW volumes imply lower panel volumes—supporting leaner operations and some cost flexibility (Solar Pricing). After a steep decline in 2024, MW prices stabilised in H1 2025, offering margin recovery potential going forward (Current Trading). With prices down ~30% over the last 18 months, management’s view that price pressure may ease through year-end is plausible (Solar Pricing).
- The demand trough will likely come in 2026 (given weak environmental policy support post-U.S. election). However, the distribution model allows for adaptable handling capacity, preserving cash flow through 2028 (Model).
- Renewables remain a growth sector and distribution business globally have solid cash conversion. At 7x EBITDA we value Amara at less than half Cinven’s 2022 multiple and only one-third of total enterprise value (DCF) at the time. Even so, today's EV covers 85% of debt. Current trading levels create the business near its debt capacity, factoring in zero value for the equity—consistent with the early-stage in the down-cycle.
- Elevated European energy prices post-Ukraine invasion are unlikely to return. Amara must recalibrate its cost structure to pre-crisis norms—conditions under which it previously thrived (Industry). The phase-out of Italy’s SuperBonus scheme is being offset by rising corporate and industrial demand, particularly in high-margin battery segments (Industry).
- Amara is highly concentrated. Half the business involves distributing solar panels from five suppliers to half of Spain. Any slowdown due to pricing volatility, delayed climate policy, or lower energy prices would directly affect its core operations (Company).
- The company’s value chain is minimal—limited to logistics, product curation, and some consulting—making it highly scale-driven. Still, as a distribution-centric model, it retains a flexible cost base aligned with market variability (Company).
- With a dominant 50% market share in Spain, Amara plays a vital aggregation role in a fragmented installer ecosystem by curating and delivering a concentrated product portfolio (Company).
To be aware of:
- Beyond €120m of net working capital, Amara has no tangible assets.
- Amara’s value chain is very short, exposing the company to the whims of market cyclicality, which is outside of management’s control. The only adjustment mechanism is cost cutting, which should be flexible enough.
- Amara has basket capacity to avoid a trigger ahead of refinancing discussions beginning 2027.
- If the valley comes, we’ll have to march through it. there will be no hiding in some profitable core operation. As per above, the price drops are befalling Amara’s highly concentrated main business. Half the company distributes solar panels from only five suppliers to half of Spain. But at 50c/€, de-risking at 10c/€ p.a., that’s priced in and the valley may never come.
Looking forward to discussing the name with you,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk