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GEK TERNA | Paving the highway to profitability step-ups

Turning the RES page; all eyes on concessions now… – GEK Terna is the largest infrastructure conglomerate in Greece, leader in both concessions and construction. Following a strategic pivot through the sale of its RES business, GEK is now well positioned to solidify its market dominance and enrich its concessions portfolio by capitalizing on the local infrastructure boom, as it utilizes the headroom for project acquisitions unlocked by the RES deal. Looking ahead, the recent acquisition of two major additional concessions will reshape profit mix, driving a >50% step-up of EBITDA by 2026e (vs 2024e levels) to €693m, while also enhancing visibility on FCF generation.

Leader in concessions, with additions visibility through 2030… – GEK holds stakes in 5 out of 7 motorways concessions in mainland Greece (1 pending onboarding) with an avg remaining life of >20 years and no expirations before 2037. All concessions are operational, with just one requiring a 5Y construction period. Recently GEK also secured the N. Crete motorway concession (operational after 2030)Beyond motorways, GEK operates two waste mgmt units and various smaller concessions, while also holding minority stakes in the under-development Kasteli Airport in Crete (32.5%) and the Resort Complex in Ellinikon (49%). Driven by the onboarding of the two flagship concessions, we estimate segment EBITDA to reach €473mn by 2026 (3Y CAGR: 42%).

… as construction complements GEK’s strategy and boosts returns – The growing local economy and the pressing need for infrastructure modernization has fostered strong growth in construction in recent years, shaping GEK’s backlog at €5bn as of June’24 vs €2.2bn in FY'21. Leveraging its leading market presence and its vertically integrated model which enables higher returns at Group level, GEK is set to capitalize on the €8-10bn in projects to be tendered within the next 18 months, aiming to boost the own projects backlog share beyond the current 65%. As such, we estimate segmental revenue at €1.37/1.43bn over FY’24/25e, filtering through to EBITDA of €114/118mn.

Improved positioning in energy underpins robust EBITDA contribution – Conventional energy is also at a pivotal juncture, with GEK’s supply share reaching 11% (vs 7% in 2022), following the new sell-side HV PPAs, and generation output set to expand by 75% in FY’25e, following the commercial operation of the 877MW CCGT (50/50 JV with MOH). With boosted volumes across generation and supply, GEK will improve its positioning and will solidify its position as the 3rd largest local player, and thus we estimate FY’24-26e EBITDA will comfortably settle within the €100-120mn range.

Initiating coverage with a Buy, €23.4 PT – The material reset in concession numbers will drive a whopping 38% growth in 2025e group EBITDA (following +9% in 2024e, proforma for the Tenergy sale) and 11% in 2026e, a compelling c17% CAGR. Our SOTP-based PT (including a 25% holding discount) of €23.4 indicates >35% upside warranting a Buy and places GEK at c8.7x 2026e EV/EBITDA, namely at premium vs the current valuation of the broad peer group deserved, in our view, by the far superior growth and visible cash flow stream which ought to help GEK re-rate to a level closer to other infrastructure plays (e.g. airports at 9-10x EV/EBITDA, concessionaires in the 2-digits).