RAPORT ANALIST January 30, 2017

Romanian Utilities. Diminishing marginal utility

With earnings on a downward trend as the regulator is cutting tariffs, investment projects that are running behind schedule and are only going to contribute to the Regulated Assets Base (RAB) after 2020E and increased risks of a potential cut in the Regulated Rate of Return (RRR) as the new regulatory periods start, we do not really see any positive triggers for the regulated utilities in Romania. On a relative basis, however, they continue to trade at discounts to their peers and to provide decent dividend yields, even if these are smaller than in past years. As such, we are neutral on our valuation of the three companies. We note that eventual acquisitions (such as Electrica buying the minorities held by Fondul Proprietatea (FP) within its subsidiaries) could generate a rerating of the stock prices but we have not included these in our valuation. We maintain our HOLD recommendations on Transelectrica (new PT: RON 31.5, 4.1% upside) and Transgaz (new PT: RON 339, 10.3% upside) and also downgrade Electrica to HOLD (new PT: RON 15.4, 12.9% upside).