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PPC | Going green, one solar panel at a time

In the context of Greece’s NECP targets and in view of its planned lignite de-commissioning, PPC seeks to increase its RES exposure, targeting a 10-20% RES market share from less than 3% currently. PPC intends to re-deploy over €3bn in capital expenditure over the 2020-2023 period, with the majority being allocated to regulated activities and renewables. On our estimates, PPC is expected to allocate over two thirds of capex for the construction of RES, mostly solar power plants. This would imply the installation of an additional 1.4-1.5 GW of RES (mainly solar) by 2023e, bringing PPC’s RES market share to c. 14% on our estimates.

We estimate that new RES installations have scope to add EBITDA of c€75K per MW, a level which would be broadly in line with the unit profitability generated by the RES divisions of other EU operators. On our numbers, PPC’s RES pipeline will add c€120mn EBITDA p.a. upon full deployment, thus contributing c. 10-12% of operating profit. According to our calculations, each 1 GW of incremental solar capacity additions (namely c€600m of invested capital) is worth more than €770mn in terms of enterprise value, which in turn translates to an implied EV/IC ratio of 1.3x and a c8% addition to the market cap. This would point to an IRR in the high single-digits, consistent with the level of returns achieved/targeted by EU renewable companies. Incorporating the aforementioned ambitious RES portfolio and switching to a standalone RES DCF from a combined Generation/Supply/RES approach previously, we now value the Renewables segment at an EV of €0.6bn. This indicates a low-double-digit EV/EBITDA multiple on 2024e numbers, when most of RES installations will be fully operational.

With PPC still trading at 6x 2022e EV/EBITDA, we argue this is still a good entry point, notwithstanding the >200% rally in the last twelve months, as we estimate that at current levels PPC’s Generation/Supply business is valued at c. 4x EV/EBITDA. Following our estimates revision to reflect increased input costs, our new methodology values PPC at a combined EV of €6.6bn (€11.6 per share), indicating a 7.2x target multiple. We are of the view that the stock should move higher in the valuation spectrum as the secular growth RES thesis plays out. Our PT implies a valuation of 5x 2021 EV/EBITDA for the Generation (x-RES) and supply business units, a reasonable c25-30% discount to the valuation normally attached to the respective segments of EU peers. The next key catalyst is the upcoming potential disposal of a stake in HEDNO (binding bids expected in the Fall).