EUR 200.00 For Business Accounts Only

PUBLIC POWER CORPORATION (PPC) | Integrated Powerhouse in the Making

9m’23 EBITDA at €937mn (+45% yoy); on track to reach mgt FY’23 EBITDA guidance of €1.2bn – PPC released another solid quarter with Q3’23 EBITDA at €347mn (+61% yoy), staying well on track to reach FY'23 EBITDA guidance of €1.2bn. Meanwhile, PPC’s share price continues to hover near November 2021 levels, with investors effectively disregarding the profitability step-up (2023e adj. EBITDA +28% vs 2022 levels). The two recent M&A deals (Enel Romania and Kotsovolos) seem to be value-accretive, with PPC looking poised to transform into a fully integrated green energy leader in SEE, something which is yet to be reflected in the share price in our view. Management will unveil PPC's updated Strategic Plan during the Capital Markets Day scheduled for January 23, 2024.

Integrated activity at the core of recurring profitability… – PPC’s integrated core activities show strong operational performance, acting as natural hedge against price fluctuations bolstering resilience. Core activities are set to further boost profitability driven by: 1) the commercial operation of the new lignite unit, 2) the expiring loss-making HV supply contracts, 3) the higher WACC (+0.8pps) and unitary fees for HEDNO. Moreover, recent M&A (Enel, Kotsovolos) further enhances integration, while the one-off windfall tax on electricity supply will certainly not derail the overall thesis.

… with RES pipeline of >15GW providing LT visibility… – Following the completion of the Enel deal, PPC now boasts an operating portfolio of c1.3GW and a sturdy pipeline of >15GW, with c5GW effectively secured in terms of permits. This effectively renders PPC a leader among Greek peers, both in terms of portfolio size and in terms of RES development growth. We anticipate PPC’s installed portfolio to comfortably exceed 2GW by the end of 2024, which comes right on schedule to service the supply of green energy to the long-term Green PPAs recently signed with Viohalco and Titan Cement.

Synergy-driven deals shape strategic direction – The strategic advantage from PPC’s recent expansion in Romania stems from low deal valuation, coupled with high synergies and geographical diversification, while importantly, we expect PPC’s net debt to remain below the guided ceiling of 3.5x, despite the M&A financing requirements. On Enel, mgt reiterated guidance for FY recurring EBITDA of €300-350m. On Kotsovolos, the deal (implying a valuation near c8x EV/EBITDAaL, 14x adj. EV/EBIT) further contributes to vertical integration, while also enabling capex savings of €100m, effectively halving the cash consideration for an asset generating >€20mn in EBIT p.a.

Valuation: reiterating PT of €13.0, Top pick – We have made modest changes to our estimates, mainly reflecting increased WC needs, while keeping our profitability estimates unchanged. For FY'23, we envisage EBITDA of €1.2bn, in line with mgt guidance, noting that our estimates do not yet include the recently acquired activities, as we await more details from the Capital Markets Day. We reiterate PPC as one of our top picks with a PT of €13.0, implying 7.1x 12-month forward EV/EBITDA, to reflect the rising RES contribution and improving recurring profit profile.