REN: Yield gap to sovereign should reduce
We are fine tuning our REN estimates ahead of the Capital Markets Day to be held on May 4th. We see REN as an attractively valued, lower-risk stock, with an appealing shareholder remuneration based on a DPS of Eur0.171 expected to remain stable until 2020, representing a DY 18E of 6.7%. Dividend distribution should represent < 60% of the FCFE generated until 2020, and therefore we see little risk to this dividend level. Moreover, at 5%, the spread of REN’s DY vs Portuguese sovereign yields is close to historical highs, while Portuguese macro has been improving and stock specific risk in REN seems limited. Regulation for Portuguese electricity transmission is now set until 2020 and we believe expectations about the special energy tax are correct (in place until 2019, no recovery of past values). With such a backdrop, we would see the spread vs sovereign yields going down, and we believe that an event like the forthcoming CMD could be a good opportunity for investors to revisit the story. We keep our FV at Eur3.0/sh, offering 18% upside on a fully regulated stock, and reiterate our SILVER BULLET BUY recommendation on REN.Ren Redes Energeticas Nacionais is engaged in two principal lines of business: electricity transmission, where Co. owns and operates Portugal's national high-voltage electricity transmission network (the "RNT"), and natural gas, where Co. is engaged in the reception, storage and regasification of liquefied natural gas ("LNG"), the operation of the national high-pressure gas transmission network, which Co. owns and operates under respective concessions and the underground storage of natural gas. Co.'s electricity transmission business is conducted through its subsidiary REN - Rede Electrica, which holds a 50 year concession to operate the electricity transmission network in Portugal.
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