Transelectrica - September 2008

IULIANA SIMONA MOCANU - Head of Research Department RAIFFEISEN CAPITAL & INVESTMENT S.A.

 

Bad year, good year

Transelectrica 1H 2008 results showed transportation revenues 7% higher than forecast, due to higher quantities of electricity transported. On the costs side, salaries and technological expenses exceeded our estimates, while congestion expenses fell drastically. EBITDA stood 25% above estimates, mainly on the quantities rise.

We feel positive about the company’s development over 2H 2008. We believe the volume of electricity delivered will surpass considerably the level of last year, which will push up EBITDA. On the other hand, the revenue-cap methodology, designed to smooth the revenue stream over the regulatory period, is expected to compensate this year’s spike in revenues in 2009, when transport tariffs are expected to drop. Revenues from allocation of interconnection capacities are treated by the regulatory body as complement to transmission revenues and their growth above initial estimates would also depress the transmission revenues in 2009. Thus we lowered our 2007-17 CAGR for transport revenues to 4.5%, from 5.2% previously.

Valuation: The DCF valation points to a 12-month target price of RON 24.7 per share (RON 35 previously), and reflects a 34% upside over the last closing price hence we maintain our buy recommendation. The relative valuation puts TEL at a 40% to 46% discount to its peers, based on 2008e and 2009e EV/EBITDA multiples. Though part of the discount is justified by the majority stake owned by the state and the regulatory risk, it supports our view that the company is undervalued.

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