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Greek Energy/Industrials | Positioning ahead of the fall

Power market in flux; prefer Mytilineos and refineries – Greek industrial/energy-exposed companies have had an eventful 2022 driven by sub-sector dynamics, general macro prospects and idiosyncratic factors. In power generation/supply, the sector remains in flux given the recent regulatory intervention, and, although generation and supply dynamics appear to broadly offset each other, there are several moving parts, not only regarding gas/carbon prices but also regulatory aspects that will determine future profitability for generators/suppliers (especially under a scenario of a big spike in gas prices in the winter). For refineries, the situation is far clearer in the light of golden age fundamentals which are set to lead to record 2022 profits and a rebasement in recurring profitability in the coming years, although we do model a retracement lower of refining margins. In Renewables, MOH is on track for a fast inorganic scale-up of its domestic RES business following the recent deal with Ellaktor, while Mytilineos is emerging as an international player. Other participants (ELPE, PPC) are also ramping up their domestic RES capacity. Pure play Terna Energy is unaffected by the regulatory intervention in the power market, with the thesis dominated by M&A discussion. Our preference in the broad space is for stocks with room for positive earnings revisions (or alternatively less risk for downgrades), greater earnings visibility, attractive valuation and dividend support. Given current valuation levels and the risk-reward proposition, we rate all stocks in the broad energy space as Buy, with our top picks being Mytilineos and Motor Oil.

Mytilineos: Emerging as a leading RES player – The shares have fallen in tandem with the retreat of the LME price (€660m in 2023.

PPC: Deep value but many moving parts – With mgt having recently reiterated the target for 2022 adj. EBITDA little-changed vs 2021, the €1.7bn loss in market cap since the capital raising looks out of sync with the €0.3bn one-off impact from the windfall tax on generation. The shares appear to offer deep value but gas supply fears and the looming elections in Greece (until Q2’23) mean this value proposition is not likely to be unlocked until more visibility is restored. We have lowered our numbers to account for the latest regulatory interventions, with our PT also dragged down by the increase in our assumed cost of capital.

Terna Energy: league of its own – We have amended our numbers for Tenergy to reflect our updated capacity phasing-in assumptions. We have also recalibrated our valuation to incorporate a “strategic investor” valuation component, given takeover interest talk. Our PT increases to €20.0, based on: 1) a fundamental valuation valuing existing capacity and under development projects through to 2025e (3.3 GW), and 2) a “Strategic-based” valuation taking into account the valuation of the incremental pipeline through to 2030 (another 3.1 GW).

Refineries: Golden age fundamentals, depressed valuation – Although the demand-supply balance ought to soften from Q4’22 onwards, valuations levels are very compelling as they are yet to price in the margin recovery from COVID and the positive refining set-up for the next 12 months. Following the lifting of our estimates for MOH, we have recalibrated our numbers for ELPE as well, lifting our PT to €8.60.