Renewable fuels entering a new cycle; INITIATE WITH BUY

VERBIO is one of Europe's leading integrated biorefineries, converting agricultural feedstocks and residues into biodiesel, bioethanol, biomethane, renewable chemicals and higher-value co-products. Its production network across Germany, the US, Canada and India maximises the value extracted from every tonne of biomass, while providing diversification across products, geographies, feedstocks and regulatory regimes.

Following two years of depressed profitability, mainly due to distortions in the German GHG quota market, weak bioethanol economics and the US ramp-up, VERBIO has entered a structural earnings recovery. Preliminary FY25/26 EBITDA reached € 192m (+€ 178m yoy). Excluding a c.€ 20m one-off benefit from GHG quota inventory write-down reversals, underlying EBITDA recovered to c.€ 172m, driven mainly by the normalisation of German GHG quota economics (eNuW: c.2/3 of EBITDA growth), stronger European bioethanol spreads and higher US production.

Importantly, the regulatory backdrop is improving as VERBIO completes its largest investment programme. Higher GHG quota prices increase the value of the existing European asset base, while rising utilisation in Nevada, the gradual conversion of South Bend towards integrated ethanol/RNG production and renewable chemicals provide additional operating leverage. The integrated bioethanol/biomethane business remains structurally the most attractive part of the portfolio, combining multiple revenue streams, favourable long-term demand fundamentals and additional upside from the monetisation of CO₂ savings.

We believe VERBIO is transitioning from an investment-led to a monetisation-led phase. In addition to the ramp-up of recently completed assets, c.0.66m tonnes of accumulated 2024 GHG quotas (eNuW) represent significant latent value. At our € 400/tCO₂ assumption, these imply c.€ 227m net cash proceeds, which we expect to be monetised across FY27/28e and FY28/29e.

The next two months could prove particularly important. FY25/26 results in late September should provide further detail on the earnings recovery, while the Capital Markets Day in early October should offer greater visibility on medium-term earnings potential, capital allocation and the rollout of renewable chemicals.

We initiate coverage with BUY and a PT of € 41, based primarily on average normalised FCF across FY27/28e and FY28/29e. Assuming € 400/tCO₂ GHG quota prices, below current spot levels, and no exceptionally strong biofuel margin environment, our forecasts imply an adjusted FCF yield of c.10% in FY27/28e, rising further in FY28/29e, while the market still assigns limited value to regulatory normalisation, recently commissioned assets and renewable chemicals.