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PUBLIC POWER CORPORATION (PPC) | Noise vs Fundamentals

Robust H1’24 performance; stock weighed down by newsflow – PPC reported H1’24 recurring EBITDA of €927m (+57% yoy/+24% organic), being well on track to comfortably reach its €1.8bn FY’24 EBITDA guidance. Along with its results, PPC announced the acquisition of a 629MW RES portfolio in Romania and a new CMD in November to provide a Strategy update following recent developments. Despite the stellar operational delivery, the price performance has been weak YTD weighed down by news flow that has overshadowed underlying results, with the most recent piece of news being the reinstatement of the special levy on electricity generation (explained below).

Securing the 5.5GW RES 2026e target with new deal – PPC announced the acquisition of a 629MW RES portfolio in Romania for an EV of €700m, indicating €1.1mn/MW, quite favorable valuation and at par with recent deals completed in the country. The portfolio includes a 600MW wind park and will make PPC the largest RES operator in Romania (c25% mkt share), while also partially balancing its 7TWh local net long customer exposure. The deal will also improve PPC’s RES capacity mix, tilting it towards the superior generation profile of wind parks, which will represent 69% of its RES portfolio post-deal completion. Lastly, this move will boost PPC’s installed RES capacity to 2.1GW, which – combined with the 3.3GW under construction and RTB – effectively secures its 2026e target of 5.5GW, suggesting that an upgrade to the overall RES target is imminent.

... as the conventional business continues its green transformation – PPC continues to transform, aiming to fully retire its lignite units by 2026, with the new 840MW gas-fired unit set for operation by the same year. In supply, PPC continues to dominate the lucrative local LV supply segment (>64% mkt share), while the termination of the HV loss-making contracts and the introduction of value-added services will be accretive to PPC profits. Finally, we estimate distribution to boost its RAB to €5.1bn (from €4.3bn in FY’23) through a €2.4bn investment plan, while the realised WACC uptick in Greece and the likely WACC uplift in Romania will further enhance profitability.

Special levy on Generation: More of a media buzz than actual impact – Amidst surging electricity prices in July, the Greek govt announced a €10/MWh special levy on natural gas used for generation, aiming to capture the industry’s “windfall profits”. The intervention targets c€30-40m proceeds to subsidize retail bills and will likely be in effect just for August. The impact will be immaterial for PPC (2x vs H1’24) and boosting even more profitability given the high operating leverage.

RES deal to unlock c€0.6/share; Reiterating as Top pick – We raise our 2024e EBITDA by 5% to €1.82bn (matching guidance) but lower our 2025/26e EBITDA by 1%, as we recalibrate our assumptions on PVs amidst increasing RES curtailments. Our updated estimates lead to an unchanged PT of €17.5, placing PPC at 7.4x 1yr fwd EV/EBITDA, namely at par with its higher-priced peers, which we reckon can be justified by PPC’s superior growth profile. Our valuation does not incorporate the new RES deal, which we estimate could unlock another c€0.6/share. We reiterate PPC as one of our top picks.