GEK Terna: Concessions, with a greener twist (BUY - initiation of coverage; Terna Energy stays BUY)
We initiate coverage of GEK Terna Group (GEK Terna) with a BUY rating and a 12M price target (PT) of EUR 12.8/share, implying 32% upside potential. GEK Terna is a longstanding name in domestic construction, undertaking landmark projects in Greece, holding key long maturity concession agreements and being involved in energy generation. The name might sound familiar, as GEK Terna is the major shareholder of Terna Energy (BUY, PT EUR 18.0), the largest RES producer in Greece, with 1.3GW of installed capacity, domestically and abroad. Due to the size and timeline of the projects undertaken in all segments, we tend to view GEK Terna as a medium-term story. The group enjoys rather strong operating profitability, derived from Terna Energy’s stable revenue stream, as well as the predictable cash flows from the two motorway concessions. We expect additional cash flows from the completion of the Kasteli airport and the Hellinikon integrated casino and resort, both strengthening the group’s operating profitability notably. On our 12M PT of EUR 12.8/share, the stock would trade at 10.7x 2021E EV/EBITDA, which we see as reasonable, in view of its diversified asset base, with strong and stable cash flow generation.GEK Terna Holding Real Estate Construction is a real estate development group based in Greece. Co.'s main activity is the development and management of investment property, the construction of any kind, the management of self-financed or co-financed projects, the construction and management of energy projects, as well as its participation in companies having similar activities. Co. has a significant and specialized presence in construction, energy as well as in the development, management and exploitation of investment property having a strong capital base. Co. is also active in construction and quarry, the industrial segment, metal constructions, and producing skids from armed concrete.
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