Public Power Corporation: Fully valued on a normalised macro (stays HOLD)

On our updated forecasts, we see a 12M price target (PT) of EUR 9.2/share for Public Power Corporation (PPC), c.2% upside to the current trading levels, so we maintain our HOLD recommendation. While management deserves full marks for its proposed transformation plans, we are still missing a clear policy for passing swings in fuel prices onto end-users, especially households. So, while we are confident that PPC can deliver: 1) cost savings from decarbonisation and headcount reduction; and 2) higher regulated distribution revenues, we are less certain about the earnings impact once input costs normalise from the highly abnormal – but highly favourable for PPC – 2020 levels. Mainly, we are thinking of PPC’s short position in supply, which will be reduced, but not eliminated, by the market share losses that we expect. If PPC was hedging this short position on a forward market – and using the hedged price as a benchmark for annual tariff adjustments – we would be more comfortable with the story; however, with the Greek forward market still in its infancy, this may not be for some time. On our long-run natural gas price of EUR 20/MWh – c.18% above the current levels, but still c.15% below the 2011-19 median of EUR 23/MWh – and SMP price of EUR 62.4/MWh, we struggle to see either further upside for our earnings forecasts or, with its risk profile, why the stock should not continue trading at a discount vs. its peers.