WOOD Flash – GEK Terna: strategy update, with a focus on concessions

GEK Terna has held a virtual investors’ day, presenting a strategy update and its 1H21 results. The group went through each segment, discussing various projects. The company presented a coherent strategy plan, adding landmark projects to its portfolio. On the construction front, although the segment does not retain high profitability margins traditionally, we expect the uplift in signed contracts to boost the EBITDA generation going forward, with GEK being the leader in major domestic construction projects. Our focus remains on the group’s concessions division, with the new projects leading to notable support for the group’s free cash flow, going forward. We tend to view this segment as a utility-type, given its relatively stable cash flow streams, governmental support and lengthy project life. We see additional upside for our current concessions estimates, arising from the Egnatia Odos Motorway and the upscaling of the Hellinikon stake to 100%, and we believe that the portfolio is undervalued by the market. Energy production remains quite a busy field for the group, with TENERGY targeting 2.1GW of installed capacity by 2026E and the new CCGT providing an additional share in the electricity market. We tend to view the story as a medium-term investment, given the life of the undertaken projects, offering a well-diversified vehicle for the Greek macro recovery. We remain BUYers. For further details, please see our initiation report.