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POWER PUBLIC CORPORATION (PPC) | The Power of Resilience

Navigating Adversity with Resilience… – PPC demonstrated remarkable resilience in 2022, managing to comfortably beat the profit guidance while delivering +9% yoy growth in adj. EBITDA. Underpinned by the Group’s strong profit execution in 2022, the improvement of working capital dynamics in H2’22 and the perceived stability in the Greek political backdrop, PPC’s share price has rallied >100% since the July 2022 lows, but we argue there is plenty of scope for further re-rating in view of PPC’s emergence as a prominent integrated utility in South Eastern Europe and a decarbonization story.

…through a robust integrated business… – The key to PPC’s resilience in FY22 was its integrated business model acting as a natural hedge against fluctuations in energy prices, as conventional installed capacity covers >80% of electricity supplied. Looking ahead, the commercial operation of the new lignite unit and the expiration of the loss making HV supply contracts will act as positive catalysts for the combined generation/supply segment. Furthermore, PPC’s low-risk complementary business in distribution is poised for a record year in terms of profits, in the light of a €200m step-up in required revenue announced by RAE (+40% yoy increase). As HEDNO executes its €2.2bn capex envelope over 2022-2026, we expect increased RAB and rising returns.

…a RES portfolio offering growth optionality… – We see PPC as the most promising RES player in Greece, as 2.3GW out of >5GW of projects have secured connection terms, by far the most among RES companies domestically. We also anticipate significant ramp-up in additions in the next couple of years, with operating capacity doubling to c700MW by the end of 2023 and reaching c1GW in 2024, thus improving the Group’s capacity mix (8% from RES in 2024). The aforementioned do not include the >500MW of operating capacity in Romania and the respective pipeline of 5GW.

…and the imminent expansion in the Balkans – The acquisition of Enel's activities in Romania will enable PPC to expand in the broader Balkans area and become a key player in the region. Despite the regulatory complexities in the country, management is very positive, guiding for regional run-rate adj. EBITDA of €300m. We view the low deal envelope as largely reflecting the embedded regulatory risk, with our own valuation indicating some 17% upside vs the price paid. The RES pipeline provides further optionality (an extra c20% on our estimates), something not reflected in our valuation.

Valuation: raising PT to €13.0, Top pick – We have raised our 2023-24e EBITDA c35% and 11% respectively, effectively aligning our numbers with mgt guidance for FY’23 (€1.2bn), in the light of the solid execution and operating dynamics. We model a step-up in profitability to €1.4bn by 2025 excl. Enel and €1.7bn incl. the latter. We value the business through a SOTP, looking forward to 2026e, namely when PPC will have largely completed its RES capacity roll-out. Taking also into consideration the accretive value of the Enel deal, we come up with a new PT of €13.0/share, indicating 7.3x 12m fwd EV/EBITDA, still small discount vs peers. We reiterate PPC as one of our top picks.