Romanian Utilities: the worst is behind us (Electrica stays BUY, Transelectrica and Transgaz stay HOLD)

We expect improving profitability for all three regulated utilities in the coming years. For Electrica, although we see some mild profit pressure in 2024E, from 2025E-onwards, we expect to see the benefit of the investments in new capacities and from lower interest expenses, as the cash flow issues should be solved gradually. For Transgaz, we see upside in 2024E from the increase in the regulated revenues starting from 1 October 2023, but reduced partly by the recent hike in royalties, and we expect a strong comeback from 2025E-onwards, from the lower corrections embedded in the revenues and substantial RAB growth. For Transelectrica, we see stronger profitability for the regulated business in 2024E, as a generous part of the interconnection revenues should be used to cover transmission costs; while, from 2025E-onwards, we see stable profitability for the regulated business, close to the regulated return on the RAB. Looking at dividend yields, we see the largest potential at Electrica, with Transelectrica ranking second and Transgaz in last position in the medium term. We believe Electrica is attractively valued, we see upside in its profitability and decent dividend yield potential, and we keep the stock as a BUY, with a new price target (PT) of RON 15.16 (34% upside). We keep our HOLD ratings on Transgaz (new PT at RON 21.26, c.12% upside) and Transelectrica (new PT at RON 33.7, c.13% upside).