ANALYST REPORT November 15, 2016

Wait for the storm end

Transelectrica reported its Q3 results today before market and had its conference call afterwards.
The earnings were much better than the very pessimistic consensus, however the y-o-y decline was also significant. Revenue declined by 30% y-o-y, mostly due to the pass-through segments, however the y-o-y decline in case of the transmission segment was almost 12%, as a result of lower transmission fees. EBITDA went down by 13.3% y-o-y to RON 505 million in the first 9M, while net profit declined by 24% to RON 213 million, which is roughly in line with our end of the year forecast. Transelectrica should earn an EPS around RON 4 of which the DPS should be around RON 2.5 giving a ca. 8.5% dividend yield calculated with the current price.
Power consumption in Romania fell by 0.3% y-o-y in the first nine months, while the power production was lower by. 3.6% y-o-y around 44 TWh. Billed volume of Transelectrica increased by 0.7% partly offset the lower tariffs.
The tariff cut was rough. Transmission tariff decreased 12% y-o-y in the first 9Ms to RON 20.11 RON/MWh, while the dispatching tariff declined by 9.5% to 1.12 RON/MWh.
The CAPEX guidance was drastically increased compared to our targeted levels for the next 10 years. We increased our CAPEX forecasts, which had a negative impact to the price target.
We reduce our end of the year target price to RON 29 per share and change our Overweight recommendation to Equal weight. We still believe that the company is a great dividend play on the Romanian market and the price should not decline drastically till the DPS keeps strong but we wait for a better momentum to get on the grid again. Last but not least we see the CAPEX increase negative, which might obstruct dividend flow.