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PUBLIC POWER CORPORATION (PPC) | Powered up

€1.1-1.35bn raising – PPC’s capital raising will run this week (book building process likely between 2nd and 4th Nov), with the group seeking to raise €1.1-1.35bn (topped up from €750m initially announced), which translates to 51-62% of the market cap. The offer price range was set between €8.5 and €9 (4-9% discount vs the last close).

The big picture – 5.7 GW RES (ex Hydro) by 2026e – PPC decided to proceed with a capital raising in order to press ahead with a more aggressive RES roll-out and to capture growth opportunities internationally while increasing 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 €5.3bn with an extra >€3bn penciled in for 2025-2026. Through this, PPC is eyeing: 1) 5.7 GW of 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).

The financing – Financing such a sizeable capex envelope would have been a Herculean task without the monetization of HEDNO (the distribution network operator). As a reminder, Macquarie’s offer valued the 49% HEDNO stake up for disposal at an EV of €2.1bn (c10x 2021e EV/EBITDA), with the corresponding cash consideration amounting to €1.3bn. Looking ahead, PPC’s expects cumulative operating cash flow over 2022-24e to shape at €2.1bn, and, in that regard, the capital raising will leave solely a €0.7-0.9bn amount to be financed by debt.

The valuation – The monetization of HEDNO removes a layer of uncertainty regarding the valuation, given that it sheds light on a high-quality asset with regulated income/returns which now accounts for c40% of PPC’s adj. EBITDA and ought to be valued at a multiple in the low teens. On the RES front, although this business is all about future deployment and installations, the business plan looks feasible (with the usual caveat of potential timeline slippages) while IRRs could be higher than the high-single digit rate normally applying for RES projects due to PPC’s vertical integration. As for other segments (conventional generation, supply), there is certainly limited visibility given the many moving parts (and contribution from new segments such as telecommunications, e-mobility) but we feel a 4-5x EBITDA valuation can be justified.

… in more detail – We believe a SOTP is appropriate and argue that investors ought to look to 2026, namely when PPC will have largely completed its RES roll-out. Incorporating PPC’s business plan (albeit with somewhat less aggressive RES capacity deployment), we come up with an estimated proportionate EV of c€10bn in 2026e (7.2x EV/EBITDA). This corresponds to a post-money (i.e. post an assumed €1.2bn capital raising) equity valuation of c€7.6bn in 2026e or a 12m fwd value of €5.46bn (discounted at 8.5%). Assuming a €9 issue price points to a post-money PT of €14.8. Flexing the discount rate by 0.5% results in a c€0.5-0.6 change in our 12m fair price.