EUR 900.00 For Business Accounts Only

Fondul Proprietatea More cash returns on the horizon

We initiate coverage of Fondul Proprietatea with a Buy rating and a Fair Value of
RON 1.34 per share, which implies 13.8% upside. In our opinion, a regular dividend
payment (which we estimate will generate a 7% yield next year) and another buyback
program (which could generate a 10% yield) are enough to justify the upside.
In addition, we anticipate more potential positives related to companies in the
fund’s portfolio; these could include more news related to either the
Hidroelectrica listing, or the unlisted stakes in Enel, or OMV Petrom’s Black Sea
project. The fund trades at a 24% discount to net asset value (NAV) which we see
as unjustified.
NAV per share at historical highs; buy-backs at a discount make a significant
contribution: The fund’s policy of buying shares at a discount to NAV has paid off
as NAV per share reached an historic high in September 2019. A large part of the
increase in NAV was due to buy-backs, as the number of shares decreased by 33%
over the past three years while the total NAV was only down 10%. We calculate
that the buy-back of a further 800m shares (as proposed by the administrator for
the next buy-back program) could lead to another 3.5% increase in NAV if
undertaken at the current price.
Listing of Hidroelectica or the start of Black Sea projects could be triggers: Fondul
Proprietatea’s largest holding is in Hidroelectrica, where the fund holds a 20%
stake representing 39% of NAV. The listing of the company is now due by the end
of 2020, according to the program of the new government led by Ludovic Orban.
The fund’s second-largest holding is in OMV Petrom, which represents 21% of NAV.
The unblocking of the project that OMV Petrom wants to start in the Black Sea is
also part of the same government program, with discussions to be held about the
taxation regime and the obligations related to the sale of gas on the internal
markets. In either of these cases, we would view a positive decision as a catalyst.