Hidroelectrica: water should yield more (SELL - transfer of coverage)
We transfer coverage of Hidroelectrica with a SELL and a 12M price target (PT) of RON 115.4/share, implying 5% downside. Hidroelectrica is the largest power producer in Romania, with 6.3 GW of hydro capacity, and one of the largest power suppliers in the country, with a c.15% market share. In 1H25, weak hydrological conditions weighed on its output, with net hydro production down 27% yoy and 30% below the 10Y historical average (9.0 TWh). While we assume a hydro volume normalisation in 2026-27E, close to the 10Y average, we expect Romanian power prices to decline, resulting in a flat 3Y (2024-27E) EBITDA CAGR. Hidroelectrica remains a value, dividend-focused stock, consistently paying out above 90% of its net profit. We expect a 6.6% dividend yield, on average, in 2025-27E. This is below the 10Y government bond yield, implying a negative spread of 59bps, versus its peers’ positive spread averaging at 161bps (Bloomberg consensus). The negative spread vs. the risk free rate, especially in the context of the limited growth expected, suggests that equity investors are getting little compensation for the regulatory, hydrological, and other risks embedded in the stock, in our view. On our 2025-26E estimates, the stock trades at 16.8-12.5x P/Es and 10.9-8.2x EV/EBITDAs, above its 2Y historical averages even on 2026E, when we assume a normalisation of hydro production close to the long-term average (8.0x on the 1YF EV/EBITDA and 12.2x on the 1YF P/E). We see potential rerating catalysts in the faster rollout of renewables, special dividends, a decline in yields, a wider premium between Romanian and German power prices, and higher-than-expected European prices.
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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