Initiation de couverture à l’achat par AlphaValue avec objectif de cours à 37.5€ par action : 14/06/2017

Utilities / France

Document generated on the 14/06/2017

A leading clean energy player

Buy Upside potential : 60.5%

Target Price (6 months) 37.2

Share Price € 23.19

Market Capitalisation €M 117

Price Momentum STRONG

Extremes 12Months 9.27 25.8

Bloomberg ticker LFDE FP

Last forecasts updated on the 14/06/2017

Corporate broking

Trading in corporate shares Analyst ownership

Advising of corporate (strategy, marketing, debt, etc) Research paid for by corporate

Provision of corporate access paid for by corporate Link between AlphaValue and a banking entity Brokerage activity at AlphaValue

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Analyst Marzio Foa

utilities@alphavalue.eu

@www.alphavalue.com

+33 (0) 1 70 61 10 50

sales@alphavalue.eu

Contract research, paid for by the above corporate entity. Equity research methods and procedures are as applied by AlphaValue. Target prices and opinions are thus exclusively determined by those methods and procedures.

Contents

Body of research.................................................................................................................. 3

Businesses & Trends...................................................................................................... 4

Money Making 13

Debt 17

Valuation......................................................................................................................... 18

DCF................................................................................................................................. 21

NAV/SOTP...................................................................................................................... 22

Worth Knowing 23

Financials........................................................................................................................ 25

Pension Risks 32

Governance & Management........................................................................................... 34

Graphics.......................................................................................................................... 38

Methodology 42

Businesses & Trends

LFDE is a green energy company developing sustainable gas resources for local consumption.

LFDE produces gas and electricity via two related activities.

In Northern France, LFDE captures the gas that is accumulating in former coal mining galleries, thereby preventing this gas from being released into the atmosphere. This gas is sold at one site (Avion) as pipeline quality gas to Total Gas&Power. At other sites, the gas will be directly converted via gas engines into green electricity and sold under a 15-years Feed in Tarif (FiT) agreement with the French State, to EDF Obligation d'achat.

In Eastern France, the company recuperates the pure gas present in the coal seams lying at a depth of 700-1,500 metres. This gas will then be sold as gas to local utilities or industrial players.

As an energy source, coal gas is a large mature industry in most other coal basins globally (Australia, North America, China…) but is still poorly developed in France and Western Europe despite the resources being present. In Europe, France has the highest known potential with over 5,000bn m3 of gas in place present in the former coal basins in Les Hauts de France and Grand Est regions, according to IHS CERA. LFDE's portfolio of assets is very unique amongst the independent energy players in Europe, since it contains a mix of existing production, near-term development and a large untapped potential (over 300bn m3, representing more than six years of France's annual gas consumption). LFDE owns the vast majority of known gas reserves and resources in France, controlling 100% of the most prolific acreage in France. This represents a massive barrier to entry and also explains the attractiveness of the company's position.

The strategy of the group is to supply an economically and ecologically competitive clean energy for regional consumption in both Lorraine and Northern France, while growing its gas reserve base through further appraisal wells in Lorraine and expanding its operations in neighbouring countries.

Link to the company's video describing what CMM and CBM are (in French): https://www.youtube.com/watch?v=-fp8BSDQeJk&feature=youtu.be

a. Northern France - Significant short-term value creation through massive increase of green energy production The gas captured in the former coal mining galleries, preventing this gas from going into the atmosphere, is a mixture of methane and air. It is commonly recoverable for many decades after the end of mining operations as methane continues to be released by the coal seams in the void created by the mining galleries. Its methane content typically varies from 25% to 80% with the remaining components being a mix of other gases such as nitrogen, carbon dioxide, oxygen and ethane and propane in some cases. The methane content of LFDE's operations in the Nord's Pas de Calais basin averages 50%.

Methane has harmful effects when released into the atmosphere and can be a safety hazard. Therefore LFDE's operations in Northern France, by capturing the methane and preventing this gas from going into the atmosphere, has significant environmental benefits. These benefits have been recognised by the French government and the EU as key factors in the European energy transition. As such, power produced from this gas benefits from a favourable feed-in tariff (FiT) guaranteed over 15 years by the French State. Article L314-1 of the French Energy Code, Decree No. 2014-375 of 28 March 2014 and the 4 November 2016 Decree, signed by the Ministry of Environment and Energy, regulate the FiT.

This FiT decreases linearly with the increase in installed capacity, and ranges from up to €77.4/MWh for 1.5MW per unit of installed capacity down to €58.2/MWh for a 4.8MW or larger engine.

This gives this gas-to-power activity a lower risk profile than other energy plays since it eliminates the pricing risk and the volatility of revenues associated with it. The gas to green power activity that LFDE develops in Northern France is very similar to an infrastructure project, with much better returns than comparable green energy production such as solar or wind power.

With over 7bn m3 (250 Bcf) of certified 2P gas reserves and 20bn m3 (700 Bcf) of certified 3P gas reserves, on its two main production permits in Northern France, LFDE is in a position to increase historical volumes of c.2.6 Bcf/y significantly