Romanian Utilities: for those willing to wait (Electrica stays BUY, Transgaz stays HOLD, Transelectrica upgraded to HOLD)

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 and the increase in power prices, which led to significant increases in the grid losses costs and squeezed supply margins. We expect profitability to remain subdued in 2022-23E, but a hefty improvement in the profitability from 2024E-onwards, driven by: the recognition of the losses incurred during 2022-23E from the high power/gas prices; high inflation; RAB growth, particularly in the case of Transgaz; and lower corrections from the past regulatory periods of previous years. The most impressive growth pattern, profitability-wise, could be at Electrica, in our view, which suffered the most from the weak power prices. Looking at the average net profit over 2024-28E, Electrica trades at a P/E of 5.4x, Transgaz at 8.4x and Transelectrica at 7.9x. We believe that Electrica provides the largest growth and yield potential, and we keep the stock as a BUY, with a new price target (PT) of RON 14.6 (57.5% upside). We keep our HOLD recommendation on Transgaz (new PT RON 278, 14.6% upside), and upgrade Transelectrica to HOLD (new PT RON 22.6, 14.3% upside).