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PPC | Reshaping the RES landscape

€1.35bn capital raising – The book building process in the context of PPC’s €1.1-1.35bn capital raising took place last week. PPC raised €1.35bn at a €9.0 issue price (150mn new shares to be issued), which translates to c60% of the market cap. Reportedly, total bids exceeded €4bn, indicating c3x oversubscription for the combined offering. As per the indicative timeline included in the issue Prospectus, PPC will announce details on the outcome of the Public Offering on Wednesday 10th November. New shares are expected to commence trading on Tuesday 16th November (subject to approval by competent AthEx committee on the 12th).

Capital raise facilitates aggressive RES capacity roll-out – PPC proceeded with the capital issue in support of a more aggressive RES roll-out and to capture growth opportunities internationally while increasing financial flexibility. The acceleration of PPC’s RES capacity deployment will also underpin Greece’s Green agenda and energy transition. Overall, PPC’s capex envelope over 2022-2024 amounts to €6bn with an extra >€3bn penciled in for 2025-2026. Through this, PPC is eyeing: 1) 4.9 GW of Greek RES capacity (ex Hydro) by 2026e from 0.2GW now (c39% share in Greek RES market incl. Hydro in 2026e); 2) Adj. EBITDA of €1.3bn in 2024e and €1.7bn in 2026e from €0.9bn in 2020-21e (c11% EBITDA CAGR over 2020-2026e).

Vertical integration & de-lignitisation create conducive backdrop for RES deployment … – In our view, the business plan looks feasible with relatively lower risk than normally attached to RES development, owing to PPC’s vertical integration and green transformation. Being one of the largest electricity suppliers in the country, PPC effectively faces significantly lower merchant risk, even under the assumption of market share reduction ahead. Meanwhile, the lignite phase-out plan underpins the need for RES scale-up to maintain security of supply, not to mention the fact that the bulk of said capacity is likely to be installed in former lignite areas with existing connection to the grid (guaranteed grid connection for c3 GW, as per mgt). As such, IRRs could be higher than the high-single digit rate normally applying for RES projects.

Financing flexibility – Following Macquarie’s offer for HEDNO, which valued the 49% HEDNO stake up for disposal at an EV of €2.1bn (c10x 2021e EV/EBITDA), the corresponding cash consideration will amount to €1.3bn. Taking into account the €2.1bn cumulative operating cash flow over 2022-24e (envisaged by PPC) and PPC’s upgraded capex envelope over the same period (€6bn), the capital raising will leave no more than €1.5bn to be financed by debt.

Post-money PT at €14.50 – As we argued in our previous note, we believe a SOTP is appropriate and suggest investors look to 2026 when PPC will have largely completed its RES roll-out. We value PPC at a proportionate EV of c€10bn in 2026e (7.2x EV/EBITDA), namely a post-money equity valuation of c€7.6bn in 2026e or a 12m fwd value of €5.46bn. We adjust our PT for the actual amount raised (€1.35bn rather than €1.2bn assumed in our model), thereby ending with a new PT of €14.50 per share.