EUR 300.00 For Business Accounts Only

ADMIE HOLDING | Unloved and undervalued

Regulated activity with ample growth prospects… – Through its 51% stake in IPTO, a natural monopoly that owns and operates the Greek Transmission System, ADMIE Holding is expected to play a key role in the Greek energy transition. The Greek regulator RAE has approved a c€5bn 10-year investment plan for IPTO, which translates into 13% RAB CAGR over 2022-2030e (and 16% through to 2025e), by far the highest RAB growth profile among its EU peers (c5% in the medium term).

… and visibility around returns until 2025 restored – Although the Greek regulator (RAE) established a somewhat lower than hoped pre-tax nominal WACC for the next regulatory period (6.1%, lower than the previous regulatory cycle), it also formally introduced the concept of “Special RAB” along with the provision of an incremental 1% return on projects of major importance. The absence of a provision for an intra-period WACC review, along with an embedded mechanism effectively shielding IPTO against inflation, raise the visibility of returns until 2025. In fact, recent press reports seem to suggest RAE is open to a potential upward revision of IPTO’s WACC, effectively indicating upside risk to returns through to 2025.

RAB step-up in 2024 will lead to enhanced profitability – Allowed revenue is set to grow to €413mn by 2025, from c.€300mn in 2022, mainly driven by the introduction of Special RAB with the completion of the Attica-Crete interconnection in 2024. The resulting step-up in RAB in 2024 along with the 1% WACC premium will boost allowed revenue by c€50mn on our estimates. We are thus looking for a material increase in profitability by 2024, with EBITDA reaching c€290mn and net income surpassing €100mn (51%-57% higher than 2021 levels).

Low valuation, compelling dividend yield – On our numbers, ADMIE’s DPS could reach €0.14 by 2025 (c8% yield), with the superior growth prospects rendering hefty returns sustainable. This is more so the case given IPTO’s balance sheet, with our estimates envisaging IPTO’s Net debt/EBITDA remaining c6x throughout the forecast period despite the heavy capex envelope, in line with the 5-6x peer group range. In the near-term, our €0.07-0.11 DPS estimate points to a yield in the 5-7% range.

Ariadne to unlock ADMIE’s hidden value… – A tender process for the disposal of 20% of Ariadne Interconnection (IPTO’s SPV that will construct Attica-Crete interconnection) was initiated in Aug’22 and binding offers are expected by the end of January 2023. Given recent transaction precedents, we believe it is natural to expect the bids to settle at a premium to RAB, thereby unlocking significant value. Indicatively, on our estimate, the consideration for 20% of Ariadne’s equity could yield c€60mn, namely c7% of ADMIE's market cap (pro-rate for its 51% stake in IPTO).

Valuation: restating coverage with a Buy – Despite enjoying the highest RAB growth among its peers, ADMIE is priced at c20% discount to RAB, in stark contrast with the premium to RAB on which electricity/gas networks in Europe trade. The low valuation comforts us in our re-stated Buy rating, with our €2.90 PT effectively (and conservatively) valuing ADMIE at just small premium to 2022e RAB to reflect the risk of delays in the investment plan execution.