ELIA: In the pursuit of (in)organic growth, quality comes at a price
Representing a premium safe haven in turbulent times, Elia is trading near a new all-time high. With no significant Covid-19 impact, long term predictable cash flows and a solid LT EPS growth story, it has thrived in a flight to quality environment. Factoring in a ramp-up in German CAPEX in combination with a lower WACC, we increase our TP to € 105. Given an in our view flatter than currently generally expected earnings momentum in 2020-2021 and with the EV/RAB valuation gap with its peers having closed, we however see less organic share price potential on the short term. As such we for now lower our rating from Accumulate to Hold at the current valuation. Nevertheless we still consider Elia a premium defensive stock to retain in one’s portfolio in these highly volatile times. A further CAPEX acceleration and/or the materialisation of a large acquisition can provide triggers for a review, with the most likely candidates (such as TenneT Germany) explored in this note.Elia System Operator develops, operates and maintains very-high-voltage (380 kV, 220 kV and 150 kV) and high-voltage (70 kV, 36 kV and 30 kV) networks, providing its customers with consultancy and engineering services. Whether in Belgium, Germany or elsewhere in Europe or the U.S., Co. ensures that electricity flows reliably from energy producers to distributors and large corporate customers. Co.'s main activities include transmission operator, system operator and market facilitator, developing and maintaining grid infrastructure, connecting electrical installations to grids, providing transparent access to grids, while taking initiatives to improve electricity market operations.
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