Nuclearelectrica: Chain reaction (BUY - transfer of coverage)
While it is the best performer in the BET index ytd, returning 83%, we believe Nuclearelectrica’s rally still has some power to it, and we transfer coverage of the stock with a BUY and a new price target (PT) of RON 17.8/share, implying upside of 27.8%. The increase in power prices in the local market has been the main driver of its outperformance and, with prices on the forward market being 30% higher on average ytd, we believe these elevated levels are here to stay over the next few years. We see costs as largely flat going forward, after sharp increases in wages over the past few years, which should translate into historical high profits becoming the norm, following its strong performance in 9M19, despite contributing 29% of its production to the regulated market in 2020E. This should translate into an average dividend yield of 15% over 2019-21E, with potential upside from special dividends; however, we are more cautious on the latter. Despite the share price more than doubling over the past 12 months, the company trades at high discounts of 38% and 62% on our 2020E P/E of 6.3x and EV/EBITDA of 1.9x, discounts we deem too high, even when taking into account the capex requirements for refurbishing unit 1, which is still far away (majority over 2027-28E).
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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