Romanian Utilities: Deferred growth (Electrica (BUY), Transelectrica (SELL) and Transgaz (HOLD) - transfer of coverage)
In this report, we transfer coverage of three Romanian utilities, due to a change of analyst responsibilities. All the Romanian utilities have underperformed the BET index in the past 12 months, which we believe reflects their weak profitability, driven largely by significant clawbacks related to the previous regulatory cycle. Dividends, one of the key attractions of the sector in the past, are no longer as appealing, with only Electrica maintaining a yield above 4% in the coming years, on our estimates. We expect profitability to recover with the start of the following regulatory period, and yields should become interesting again in 2025E. When it comes to growth, Transgaz remains the front runner, with the regulated asset base rising potentially, on average, by 11% p.a. over 2020-28E, while Transelectrica is the laggard, with its RAB up less than 2% p.a., on average, over the same period. At Electrica, the connections to the grid, now to be paid by the operators and reflected in the tariffs, provide an unexpected boost for the capex plan for the coming years, which could help the company deliver an average annual growth rate of c.4.5% for its RAB over 2020-28E, on our estimates. On a relative basis, the sector is trading below its peers in terms of EV/EBITDA, excluding Transgaz, but above its European peers in terms of P/E, as depreciation represents a large chunk of the EBITDA. We believe that Electrica provides the ideal combination of growth and dividends, and remains a BUY, with a new price target (PT) of RON 16.5 (29.3% upside). We keep our HOLD recommendation on Transgaz (new PT at RON 286, 2.6% upside), and we have downgraded Transelectrica to SELL (new PT at RON 22.8, 7.9% downside).
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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