EYDAP is working on a 5-year / E0.6bn business plan but few details have been announced; we are missing important elements, therefore …

Shares trade 5.0x EBITDA 2016E including P&H liabilities of E270m; we have lowered our EBITDA estimates by 10%; we believe there is value in Athens Water under certain conditions (see report attached) but since the government has other priorities (and views) the stock will remain a value trap. We reiterate DOI with a lower price target.

Investors have their eyes on the E233m sitting in the balance sheet; management said it is ready to give E150m (E1.4/share) back to shareholders – 27% of market cap – on state’s approval. The latter needs the money so a capital return seems like the only business plan there is for the water utility. We are not sure the government will bother planning any network expansion, leveraging up the balance sheet and/or merging EYDAP with EYATH (Salonica Water) – given it has its hands full with more urgent stuff currently. Athens Water is profitable and a good cash yielder (2015E FCFE 13%) and dividend yield could rise above 5% if payout goes >50%, on our estimates. Since we doubt the government will be unlocking any value anytime soon, we reiterate our DOI rating.

Status quo or privatization? We see good value in scenario B according to which the state separates infrastructure assets, introduces RAB model and awards (privatizes) the concession business; valuation ranges from E10 per share to E15 per share; latter reflects network expansion and streamlining of costs – in line with a return on RAB of 10%-11%; we see a win-win case with the state (61.33% stake) pocketing E123m from a capital return prior to the sale and E250m from selling 34% in the concession…a total E373m; private investors pay E250m to hit a project IRR of 11%; rest of Attica sees network upgrades as EYDAP takes over from municipalities; will the Supreme Court give the green light for the privatization? Will the political landscape favor it? We cannot rate the shares at this stage (Not Rated); we address most important issues on EYDAP on pp. 21-27 and present our valuation exercises on pp. 4-17