Nuclearelectrica: riding the power price boom (upgraded to BUY)

Nuclearelectrica has rallied in the past year, rising by 89%, while the BET has climbed by 16%. The surge was supported by improving profitability, following the deregulation of the market as of January 2021, and by the rise in power prices. The impact from higher power prices will be felt more acutely in 2022E, with the price in the forward contracts, which make up more than 75% of power sales, up 84% yoy, pushing our net profit forecast to RON 2.6bn in 2022E, 2.5x higher yoy and 3.7x the 2020 net profit. The upside potential is much more muted in 2023E, despite higher expected forward prices, being limited by the 80% windfall tax (applied when the net income per MWh sold exceeds RON 450/MWh). We see realised power prices contracting after 2024E, but still elevated, and we expect the net profit to remain at RON 2.2-2.5bn over 2024-26E. During the refurbishment, which is expected to last 32 months, from January 2027 to September 2029, unit 1 will be closed, which will reduce the profitability drastically (below RON 550m p.a., on our numbers). Assuming a 55% payout until the end of the refurbishment, we expect dividend yields of 9-12% over 2022-26E, marginal between 2027-29E and back close to 9% in 2030E, with the average dividend yield at 7% over 2022-30E. We have raised our capex assumptions, after the release of the new cost estimates for the refurbishment of unit 1 (EUR 1.9bn vs. the previous guidance of less than EUR 1.5bn), but the company can accumulate enough cash to finance the high capex almost entirely with equity, by lowering the payout. We see further upside for Nuclearelectrica, so we have upgraded the stock to BUY, and set a new price target (PT) of RON 55.2/share, implying upside of 22.8%.