Veolia
The latest investment analysis on Veolia
Group Research - Equities10 Mar 2025
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Company Overview
Veolia Environnement SA (Veolia), a France-based utility company, is one of the world largest environmental services providers. It has three main business segments: 1) Water (48% of EBITDA) - provides drinking water to more than 110mn people; 2) Waste (29%) - Waste services include management of solid or liquid non-hazardous or hazardous waste; and 3) Energy (23%) - energy efficiency, heating and cooling network management and renewable energy production.
Investment Overview
A global champion in ecological transition. Drawing on over 170 years of expertise, Veolia is uniquely positioned as an innovative global leader player in water, waste and energy, focusing on new technologies and growth markets. It has a highly diversified geographic footprint (60% in Europe and 40% the rest of world), a well-balanced portfolio mix and sound revenue visibility based on its contracted and quasi-regulated businesses (~70% of revenue is indexed).
“GreenUp” the missing link in ecological transformation. Veolia’s new 2024-2027 strategic program aims at accelerating the deployment of affordable, replicable solutions that depollute, decarbonise and regenerate resources. This will be achieved through three growth boosters: 1) Water Technologies & New Solutions such as treatment of water and pollutants and reuse of treated wastewater; 2) Hazardous Waste Treatment – accelerate innovation in lithium battery recycling, and deploy large-scale plastics recycling; 3) Bioenergy, Flexibility and Energy Efficiency – ambition to produce 8GW (+50%) of bioenergy and have a flexible installed capacity of 3GW (+50%) by 2030.
Double digit growth through 2027. These growth boosters underscore Veolia’s target of ~10% CAGR in net profit over 2023-2027 (from EUR1.335bn in FY23), on >5% CAGR in EBITDA to >EUR8bn (from EUR6.543bn in FY23), further aided by EUR350m cost savings per year. It has made good progress in efficiency improvement, achieving above-target-savings of EUR389mn in 2023, in addition to the benefits of Suez acquisition amounted to EUR168mn cost savings. Dividend payout should be growing in tandem with EPS. Financial leverage is also expected to remain at healthy level, with Net Debt/EBITDA of <3x (vs 2.74x as of end 2023). Looking into 2024, Veolia expects to generate net income of >EUR1.5bn, or ~12% y/y increase. Assuming similar growth in dividends over EUR1.25/share dividend in 2023, Veolia could distribute c.EUR1.4/share for 2024, implying decent c.4.5% yield.
Initiate with BUY; TP EUR37.70. Veolia currently trades at undemanding valuation of ~14x P/E, below its 5-year historical average of 16x. On EV/EBITDA basis, the stock is trading at ~6x, c. its 5-year average and below the MSCI EUROPE Multi-Utilities Index (7x). We value Veolia based on 6.3x EV/EBITDA or 0.5SD above 5-year mean, arriving at TP of EUR 37.70/share. We believe this is justifiable, considering its 10% annual growth potential and yield of over 4%.
Risks
Veolia operates within highly regulated industries globally across various jurisdiction increases susceptibility to the risk of regulatory changes. The energy business is dependent energy prices, which could swing revenue and margins.