ADMIE Holdings: Investments Are On Track

What’s new? Q4/FY results confirmed the mismatch between regulated and actual depreciation (see our previous note attached). This, plus some smaller one-off items, drove net income and dividend 10%-12% lower compared to our estimates. More importantly though, capex spent (E412m in FY 2021) to interconnect the islands remains on track. The new 2022-2025 RAB is expected shortly and should lead to double the EBITDA by 2024 at E380m. Conclusion. We made slight changes to our 2022-2025 forecasts; the main one is increasing our non-regulated depreciation to E20m (from E15m p.a.) We still model for a lower RoRAB (vs. IPTO’s proposal to the regulator), closer to what the distribution operator (HEDNO) got a few months ago. We project 2025 EBITDA of E380m, which is 7% below IPTO’s proposal implied EBITDA of E407m.

RG_ADMIE Holdings_ Investments on Track __ Update

What’s new? Piraeus presented its 2022-2025 business plan on Apr 6. Compared to the old one (2020-2024), communicated 12 months ago, the bank now targets lower NII on weaker net credit expansion, compensated by stronger fees, more cost cutting and lower impairments; ending up with unchanged 10% RoTE 2024 an introducing 12% for 2025. Plus resuming dividends out of 2023 earnings. Conclusion. We cannot help thinking Piraeus aimed for an unchanged 10% RoTE 2024 and worked around the numbers to hit this target. The task proved demanding given the lower lending growth numbers affecting NII (-15% in 2024). But eventually the exercise worked out.

What’s new? FY 2021 results (Apr 5) were a perfect illustration of PPC’s vertical integration (generation – supply), renewables (hydro) and regulated EBITDA (distribution) absorbing the wholesale tariff shocks caused by the RUS – UKR war conflict via abnormally high gas prices.
Conclusion: We reiterate our OI rating even if it means we are lowering our EBITDA estimates by 2%-7% in 2023-2025 to account for higher wholesale prices and for longer. Our thesis is built around PPC spending E3bn to install 5GW of solar and wind by 2026 (from 200MW in 2021) and we are happy management reiterated these targets.

What’s new? We have updated our model following the publication of FY 2021 IFRS notes. We also analyze gas power plant economics considering MYT’s 826MW new CCGT within 2022. The latter will add value but is no match for renewables, in our view. Our assessment considers the current geopolitical crisis does not escalate further, and that natural gas and electricity prices deflate in 2023. Compared to our previous assessment, we raise our EBITDA by 20% in 2023E and by 13% in 2024E, incorporating higher aluminum prices.
Conclusion: The one box that MYT does NOT tick is our ‘keep it simple’ box. It takes a full page of assumptions to model the company, from commodity prices and EUR/USD to production and macro/micro supply electricity economics; and from carbon prices to engineering order backlog. This point alone is enough to avoid the investment case. We reiterate our DOI rating and PT of E16 as consensus valuation >E20 requires current AL and 2021 gas power economics to prevail in the long term. That said, we aim to be constructive by outlining our thoughts in this note.

Our base case scenario is Greek banks will weather the geopolitical crisis even if they must deal with a short-term spike in their bad loan ratios. They have limited to zero exposure to RUS and UKR. This saves them any direct impact, but their business will be indirectly affected as consumers see their disposable income weakened by inflation. This is where the government steps in, absorbing some of the pain via its subsidy scheme for electricity and fuel costs.
All in, we reiterate our cautious stance on the sector as illustrated in our consistently lower than guided RoTE targets (7-7.5%% vs. 9-10%). We expect GR banks will keep trading at a 20%-25% discount to their EUR peers. Trading wise, this answers the question about when their share prices will go up. We recommend investors follow and buy Alpha (OI) and NBG (OI) on weakness, on the conditionality that the crisis does not escalate beyond the two countries.