TERNA ENERGY | Improved working capital warrants upgrade to ‘Buy’
Following a series of reforms, the market operator broke even in last year and has accumulated a €102mn surplus (Aug ’18). As a result, LAGIE compensates RES generators promptly, alleviating risks associated with potential remuneration changes. As of Nov ‘18, generators have been compensated for electricity produced in July almost in full, bringing the delay down to an all-time low of 3 months from 7-8 months in the last 2 years. Improved working capital dynamics eliminate the threat of downward remuneration adjustments on the back of the market operator’s accumulating deficit, which had been in place for more than 5 yrs. Along with the fact that Greece remains underinvested in wind against 2020 targets, current market dynamics paint a favourable picture for Terna Energy’s Greek capacity expansion plans. Following a revision to reflect lower working capital needs as a result of timely compensation by the market operator and fine-tuning of operational dynamics ( 30% upside from current levels. At our target price, Terna Energy would trade 7.7x 2019e EV/EBITDA, broadly in line with European RES Generators.Terna Energy is a vertically organized renewable energy sources group based in Greece. Co. is mainly engaged in the energy and construction sector. Co. is active in Wind Energy, as well as Hydroelectric Projects, Solar PV and Integrated Management of Waste to Energy and Biomass Projects. Co. is also engaged in the research for the operation and construction of projects related to other renewable energy sources (RES). Co. maintains a class 6 contractor certificate and its activity in the construction sector relates to the construction of private and public projects as a main contractor or subcontractor or through joint ventures.
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