Prime Energy P E : Analysis update following financial report

INDEPENDENT EQUITY RESEARCH

PRIME ENERGY LTD UPDATE REPORT

18.06.2023‏

Stock Exchange

TASE

Symbol

PRIM

Sector

Technology

Sub-sector

Cleantech

Stock price target

NIS 19.3

Closing price

NIS 1.4

Market cap

NIS 42.7 Mn

No. of shares

29.5 Mn

Average Daily Trading Volume

NIS 146 thousand

Stock Performance (since Jan. 1 2023)

-55.0%

Signed binding agreement for joint venture with Lahav Energy to construct 8 PV facilities with up to 100 MW(DC); binding agreement for up to 50% of Telamim project sale, valued at NIS 72.5M; significant progress and increase in responses received for construction of 29 dual-use facilities for approx. 188 MW (AC), with which Prime Energy will build approx. 900 MWh of storage for the facility; price target remains unchanged.

Prime Energy (TASE: PRIM) is an Israeli company established in 2013 that specializes in initiating, developing, building, operating, and maintaining renewable energy projects in Israel and Europe. The company has extensive experience in all aspects of renewable energy projects and has successfully developed Israel's first solar system for Dual-Use. Currently, the company has projects totaling 1.1 GW, of which they have a 95% stake (with some expected to be realized through storage) at different stages of development in Israel and Europe. Prime Energy aims to scale up the production of dual-use facilities significantly both in Israel and globally within the next two years.

Key events since the last report:

• Announced the signing of a cooperative agreement (April 16) with Lahav Energy to establish 8 PV facilities, generating up to 100 MW (DC). Lahav Energy will fully finance the project (up to 20%) and provide a construction guarantee (around NIS 5M). After completion, Lahav will settle the payment at NIS 2,700 per KW (DC). This agreement requires no capital investment from Prime, and they will retain a 50% stake in the successful setup of up to 100 MW DC.
• P.V. Planet 2019 Ltd., a subsidiary of Prime Energy, has reached a binding agreement with Helios Renewable Energy 4. As per the agreement, Helios will buy 50% of the rights to the Telamim project, which is a ground-based PV facility with a capacity of 14 MW (AC) or approx. 22.5 MW (DC). The deal's total value is NIS 72.5 million, as agreed upon by both parties.
• Continued to establish and connect additional projects (some of which are ready to be connected)

in various arrangements with a capacity of several tens of MW over the next 2 years.

Market and trends - investments in the field of renewable energy reached a peak of $350B in 2020, of which approx. $290B were invested in the fields of solar and wind energy. We anticipate a decade of many investments in the field alongside growing business viability even in an environment of rising interest rates. The company's strategy focuses on increasing the total installed capacity, developing new partnerships in Israel and global markets.

Bottom line - Prime currently operates approx. 25.4 MW grid-connected with over 1,200 MW more at various stages of construction, licensing, and initiation, plus a potential 1,000 MWh of storage. In our estimation, steady progress in project execution, projecting a revenue increase to approximately NIS 12M by year-end, and a substantial rise in grid-connected MW. While lower costs for equipment (panels, inverters, iron, etc.) and transportation have benefitted Prime Energy's 2022 activities, increased costs of debt and the NIS depreciation since the start of the year have adversely affected project profitability. We regularly update the economic model to reflect project progress and changes to the interest rates. The price target remains unchanged.

Yield in percent

	Year		Revenues*		EBITDA*		MW
		(M NIS)		(M NIS)		connected**
	2021A			6.9			4.9			18
	2022A	6.3		4.8		25.4
	2023E			11.9			9			34.8***
	2024E	31.4		23.5		~305***
	2025E			175.9			131.8			~805***

• Connected by the end of the year; Expected annual revenues/EBITDA rate from projects (representing 100% holdings in projects assuming a full year of operation), not including management fees and additional income at the corporation level; including projects abroad.
• Forward-lookinginformation.
• It should be noted that due to a delay in confirming responses from a department and delays on the part of the electric company in completing the infrastructure works on its part to receive the electricity produced from the company's facilities, some of the expected connection dates were postponed and accordingly the company's forecasts were updated.

Lead Analyst

Dr. Tiran Rothman

[e-mail]

Tel.: [phone]

Prime Energy

18.06.2023‏

Key events in Q1 2023 and in recent months:

• Building upon a previous memorandum of understanding regarding the sale of a 50% stake in the Telamim project, the company confirmed the signing of a definitive agreement on May 15. This agreement was made with a subsidiary under Helios Renewable Energy 4, an Israeli investment fund. According to the agreement, P.V. Planet 2019 Ltd., a wholly-owned subsidiary, will sell a 50% stake of its rights in the Telamim project to the buyer. This project is a ground-based photovoltaic initiative with a capacity of 14 MW (AC), equivalent to approx. 22.5 MW DC.

1. Phase A of the Telamim project was finalized, and it has a power output of 14 MW (AC). As of November 2022, 5 MW (AC) and 7.7 MW (DC) were connected to the electricity grid. This project has a 23-year contract with the Electric Company, with a guaranteed index-linked rate of 19.27 agurot per KW in 2023. The expansion of Phase I to a total capacity of 12.1 MW DC is projected to be finalized by June 30, 2023.

1. Phase B of the Telamim project, which is poised to provide an additional capacity of 9 MW (AC) or 10.4 MW DC, is expected to be connected to the electricity grid by August 2024. However, the company is actively collaborating with the Electric Company to expedite the connection date to Q4 2023.

1. The project's total value is estimated at approx. NIS 72.5 million as per the transaction. The purchaser will provide a total payment of NIS 36.25 million in two installments in exchange for half of the company's rights in the Telamim project.

• 1. The joint project company will strive to obtain senior debt financing for the project. The company expects that the total net flow resulting from the sale and financing (minus project completion costs) will amount to approx. NIS 50-55 million.
• On April 17, a joint venture was launched with Lahav Energy to construct eight PV facilities, collectively yielding up to 65.3 MW (AC) and 100 MW (DC).
• 1. Lahav Energy will fund the projects' full equity capital, up to 20% of construction costs (capped at NIS 54 million) and provide a construction bond of around NIS 5 million.

1. Upon completion of the construction phase, payment to Prime Energy will conclude at NIS 2,700 per KW (DC), inclusive of initiation, construction, and financing, but excluding storage components, credit allocation fees, and senior debt fund payments.

• 1. If all projects attain full commercial operation, expected annual NOI is NIS 22 million (or NIS 35 million with storage), with a projected annual transaction yield of 8.5% (13.5% with storage), and an approx. return on equity of 18.6% (53% with storage).
• On April 16, the company announced the appointment of Guy Conforti, CPA, as its new CFO. He replaced the former CFO, Yitzhak Cohen, who stepped down from his position on April 30, 2023, to accept a similar role at another public company.
• Revenues from the sale of electricity increased by approx. 56% compared to the same period in the previous year. They rose from approx. NIS 1.4 million to around NIS 2.1 million. This increase was due to additional revenues from the furrow project and improved production at existing facilities thanks to the company's proactive monitoring and maintenance efforts.
• Cash and cash equivalents decreased by approx. 59% compared to the same period last year, dropping from about NIS 52.3 million to nearly NIS 21.5 million. This substantial decrease was primarily due to investments in electricity generation systems.

For additional information about the company and the valuation please read our initiation report.

R E S E A R C H & C O N S U L T I N G L T D.

Investment Thesis

Climate change is one of the most significant concerns facing governments worldwide, and achieving decarbonization in the power sector is the key to tackling the issue. While hydropower has been a major source of energy generation for decades, solar and wind energy have been gaining momentum, with the Paris Agreement of 2015 propelling the growth further. Globally, investment in renewable energy hit a high of $350 billion in 2020, with solar PV and wind power accounting for $290 billion of the total. A decade of high investment is expected as the case for renewable‏energy becomes ever stronger.

The implementation of government decisions translates into policies, regulations, and licensing processes of companies that build renewable energy electricity generating facilities that are supposed to provide electricity over many years in a reliable, safe, and economical manner.

Prime Energy (TASE: PRIM) has experience across all steps and stages of renewable energy projects. The company has initiated and erected PV projects in Israel with approx. 800 MW capacity, which exemplifies Prime Energy's high capabilities in developing projects from early stages. Overall, it has a projects portfolio with an operational capacity of approx. 1.34 GW under various stages of development, construction, and operation (Prime Energy's total accumulated share is approx. 1.27 GW).

Prime Energy's strategy is increasing its property portfolio by acquiring new facilities (at various initiation and development stages) and making bids on tenders and competitive procedures. In addition, the company seeks to develop new partnerships in diverse global markets to promote new projects worldwide (focusing on the United States and Europe) while combining its core capabilities in planning and development with local capabilities required by the local developers. As the company is tech-agnostic, it also examines the viability of investing in other projects besides PV, such as storage, wind, and more.

Lastly, the company began to use advanced robotic solar panel cleaners to maximize energy production and operational efficiencies to improve its operating margins.

Prime Energy's value proposition to investors, partners, and suppliers include:

• Proven ability to develop complex and novel projects through all stages: initiation, financial closure, construction, and ongoing maintenance.
• Diversified projects pipeline, characterized by high holding rates.

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R E S E A R C H & C O N S U L T I N G L T D.

• Experienced professional and management teams in the solar field.
• An experienced EPC and O&M arm ("Solar Town").
• A lean and efficient organizational structure.
• A pioneer and leader in the field of dual-use in Israel, with a quota of many megawatts of PV and over 1,000 MWh of storage.

We forecast that by the end of 2023, Prime Energy's revenue from projects (representing 100% of holdings in projects) will reach NIS 31.3 million, and NIS 125.3 million by the end of 2024.

Overview on the company, an introduction to the global renewable energy market and further details on the

valuation are extensively detailed in our initiation of coverage report.

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R E S E A R C H & C O N S U L T I N G L T D.

Market Overview

Global renewables market

Climate change is one of the greatest concerns for governments worldwide, and achieving decarbonization in the power sector is the key to tackling the issue. While hydropower has been a major source of energy generation for decades, solar and wind energy have been gaining momentum, and the Paris agreement has propelled the growth further. Investment in renewable energy globally hit a high of $350 billion in 2020, with solar PV and wind power accounting for $290 billion of the total. A decade of high investment is forecasted as the business case for renewables becomes ever stronger.

Renewable Energy Market - Market Drivers & Restraints

	Drivers			1-2 Years			3-4 Years			5-9 Years
	Growing concern for tackling global climate change
	Declining solar and wind generation costs and project costs
	accelerate new deployments
	Declining battery Energy Storage Systems (ESS )costs
	Increased traction for hybrids in Variable Renewable Energy
	(VRE( offers horizontal integration and capacity building
	opportunities
	Need to replace aging power plants
	Increasing digitization across the renewable energy market
	Restraints			1-2 Years			3-4 Years			5-9 Years
	Need to tackle grid integration issues
	Withdrawal of government subsidies and support could lower
	growth rates
	Increase in competitive intensity

Impact Ratings:

=High, =Medium, =Low

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