Polish Utilities: the Ugly Ducklings (TPE and PGE stay BUY, ENA upgraded to BUY, LWB stays HOLD)
In this report, we update our views on PGE, Tauron, Enea and Bogdanka. Following the recent steps by the government, which should bring the long-discussed carve out of the coal assets to fruition, we reiterate our positive view on the Polish utilities sector. Separately, with power and coal prices at their all-time highs, we have updated our models, for both the carve-out scenarios and the status quo. While some uncertainty remains – which is well-understood by the market, in our view – we weight our worst-case and best-case scenarios, and issue BUY ratings on all of the three state-controlled utilities. This is despite the heavy green capex planned for this decade, no dividends expected, and believing that the massive valuation upside for the minorities is more accidental than intentional. To us, the valuation gap of the soon-to-become green generators, with heavy exposure to power distribution and heating, remains too high vs. the other European peers. As in our previous report, Tauron is our top pick (BUY). We have upgraded Enea from Hold to BUY, and we stick to our BUY rating on PGE. Separately, we have increased our price target (PT) significantly for Bogdanka; however, even with the Treasury taking over from Enea, we remain HOLDers of the stock.ENEA is engaged in production of electricity and heat; trade in electricity; and distribution of electricity.
Lubelski Wegiel Bogdanka is a hard coal manufacturing group based in Poland. Co.'s core business activities are mining and agglomeration of hard coal. The energetic coal sold by Co. is used mainly for the generation of electric and thermal energy as well as for cement production. Co.'s customers are mainly the industrial companies, first of all those acting in the power industry and situated in east and northern - east Poland. Co.'s mine is located in the part of Lubelskie Coal Basin (LZW) and performs its mining operations within the mining area with surface of 57 km2.
PGE Polska Grupa Energetyczna is an electricity company based in Poland. Co. is engaged in the generation and selling of electricity. Co. is a predominant power producer and supplier in Poland and a major heat and power sector company in Central and Eastern Europe. Co. supplies over 5 million households, businesses and institutions through a combination of its own fuel resources (lignite), power generation and final distribution networks. Co.'s activities focus on the following areas: Conventional Power Generation, Renewable Power Generation, Nuclear Power Generation, Wholesale, Distribution and Retail. Co. has 12.2 GW of installed generation capacity.
Tauron Polska Energia is engaged in the generation, transmission, distribution, and sale of electricity and heat in Poland. Co. generates electricity from various conventional and renewable energy sources, including hard coal, lignite, natural gas, biomass, wind, solar, and hydro power. It is also involved in quarrying, crushing, and breaking of limestone; quarrying of stone for the construction industry; mining of hard coal; trading in electricity; and production of technical gases. In addition, Co. engages in the repair and maintenance of machinery and electrical equipment; electrical installations; and construction of power lines.
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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