CleanTech: 2023 Valuation Multiples

In order to face the increasingly critical threat of climate change and reduce global dependency on fossil fuel, increasingly more innovative companies worldwide are using science and tech to create or improve energy sources that are not environmentally detrimental, to optimise the efficiency of energy usage or to reduce the existing carbon footprint. These sectors have become collectively known as CleanTech.

The economic potential of companies in the CleanTech space is now well-documented. Nearly a decade-worth of data has confirmed the reliability of so-called ESG (Environmental, Social & Governance) companies, as more and more incumbent businesses—including those actively producing fossil fuels—shift to more environmentally conscious practices.

In their latest report from October 2022, the International Energy Agency projected cumulative investment across clean technologies to reach $2tn per year by 2030. To meet the demand for investment in such ventures, tech giants such as Samsung and Siemens have launched entire divisions dedicated to renewable energy production, energy storage and other sustainable activities.

The CleanTech ETF (CTEC), managed by Mirae Asset Group, seeks to invest in “companies that stand to benefit from the increased adoption of technologies that inhibit or reduce negative environmental impacts. This includes companies involved in renewable energy production, energy storage, smart grid implementation, residential/commercial energy efficiency, and/or the production and provision of pollution.”

The 40 companies in the fund are all listed on public stock exchanges, and so their financial metrics may differ from younger start-ups introducing innovative technologies, typically considered a high-risk-high-reward investment. Around 65% of these companies recorded positive revenues throughout the past 2 years, and around than 50% had a positive EBITDA.

CleanTech Valuation Multiples

Within just one year—from Q1 2020 to Q1 2021—median Revenue multiples for the cohort nearly quadrupled, jumping from 1.1x to 4x, and although multiples faltered throughout 2021, falling back to 2.3x in Q2 2022, they have since turned on an upwards trajectory.

The median EV/Revenue Multiple for CleanTech companies was 2.6x in the last quarter of 2022. This is over double pre-pandemic levels.

Source: YCharts

These revenue multiples are still considerably lower than comparable sectors—like Renewable Energy producers for example—due to many of the technologies developed by CleanTech companies still being experimental to some extent.

Increasing pressures on this sector have come not only by a not-so-favourable external environment, with a shortage of funding and dwindling investor liquidity, but most importantly by an almost unprecedented energy crisis caused by the invasion of Ukraine, which halted natural gas exports from Russia, sending shockwaves throughout the energy supply chain.

Obviously this has meant—at least in part—a shift of funding away from cleaner, more long-term energy solutions, towards more readily-available, non-renewable sources. This is the case with the massive oil drilling project in Alaska approved by the Biden administration in March.

Source: YCharts In the chart above, the lines indicate the range of EV/Revenue multiples in our cohorts, while the boxes highlight the Interquartile Range (IQR), which is where the median 50% of the cohort ranks based on their valuation multiple.

As mentioned, only half of the companies in the cohort showed profitability measured as EBITDA.

EV/EBITDA Multiples show that businesses that are able to prove their business model by being profitable are being rewarded with relatively high valuations. Following a similar trend to their Revenue counterparts, EV/EBITDA multiples nearly tripled from 12.1x in Q1 2020 to a peak of 30.6x in Q1 2021.

The metric decreased throughout 2021 before picking up again throughout 2022—which is rather unique to this sector—with the median EV/EBITDA multiple for CleanTech companies being 19.7 in Q4 2022.

Source: YCharts

Going back to the previous comparison, while CleanTech revenue multiples fall behind their Renewable Energy counterparts, EV/EBITDA multiples for CleanTech nearly doubled the ones for Renewables in the first half of 2021.

Another positive sign of maturity for the sector is the decrease in variance for EBITDA multiples while median multiples increase, which means that profitable companies are reaching comparable valuation levels, without any clear winners or losers, but with the whole sector growing as a whole.

Source: YCharts In the chart above, the lines indicate the range of EV/Revenue multiples in our cohorts, while the boxes highlight the Interquartile Range (IQR), which is where the median 50% of the cohort ranks based on their valuation multiple.