Hidroelectrica: incorporating lower power prices (downgraded to HOLD)

European forward power prices have dropped sharply since November, towards EUR 80/MWh currently. This came on the back of a mixture of factors, including low gas prices, falling CO2 emissions allowance prices, strong supply and a weak demand outlook. The fall was faster and more abrupt than we had expected and has led us to cut our forward power price projections for Europe from c.EUR 90-100/MWh from 2025E, to closer to EUR 75/MWh. We see a minor impact from lower prices on Hidroelectrica’s 2024E results under the current regulatory framework, but once that framework is removed, we expect a contraction in realised prices, as we expect Romanian forward prices to settle close to European ones. We have reduced our 2025-27E net profit forecasts by 15% and now see the net profit posting a bottom of RON 4.1bn in 2026E, before being lifted by the addition of new capacity. We use the same mix between DCF, DDM and peer comparisons to value Hidroelectrica as previously. Our new 12M price target (PT) stands at RON 129.5 (from RON 144.9), offering 4% upside vs. the current share and leading us to downgrade the stock from Buy to HOLD. The capital structure would allow a more ambitious expansion into RES or higher dividends than is reflected in our numbers. We see a possible rerating with a faster rollout of renewables, special dividends, a decline in yields, higher premiums between Romanian and German power prices, or a rebound in European prices.