Terna Energy: Patience is a virtue (stays BUY)

We have updated our numbers for Terna Energy, taking into consideration our assumptions: i) exiting the US business, as a result of February’s extreme weather event, which caused a considerable financial liability from the hedged contracts; ii) the fully operational 120MW Evoia project from 2H20; iii) the additional capacity of 500MW of solar and wind power over the next four years; and iv) the development of a 680MW PSH unit in Amfilochia, Greece. Despite the recent headwinds at its US business, we continue to believe that Terna Energy fits the profile for investors with longer-term horizons, looking for exposure in European renewables. The mix of market positioning, consistent execution, and operating profitability are the key aspects that make Terna an attractive investment story, in our view. Although the stock has rerated since last year, as have most RES stocks vs. O&G names, we believe the market is not fully discounting the 1GW of additional MW that the company has committed to. On our numbers, the stock is trading at a 2022E P/E of 24.7x and 14.3x EV/EBITDA, falling to 12.6x P/E and 10.3x EV/EBITDA in 2023E, as the Kafireas project profitability kicks in. We reiterate our BUY rating on the stock and raise our 12M PT to EUR 17.6/share, yielding 43% upside potential.