Alexandru Combei, BRD Asset Management: "Hidroelectrica benefited from a favorable hydrological context throughout 2023"

• "Expectations regarding the implications of the Hidroelectrica listing were perhaps a bit higher"

• "The company's dividend yield should fall to single-digit levels"

The Hidroelectrica IPO was a particularly important event for our market (it was the largest IPO in the region and will probably remain the largest in the local market for some time) that all participants have been waiting for a long time, says Alexandru Combei, CFA, Investment Director of BRD Asset Management.

"However, the expectations regarding the implications were perhaps a bit higher, especially regarding the impact on a possible transition of the stock market to emerging market status according to MSCI", added the Investment Director of BRD Asset Management.

In his opinion, the full glass of Hidroelectrirca's listing is given by the effervescence that the event generated locally, bringing new retail investors to the stock exchange for the first time, by the fact that we have a new large issuer, given that the stock exchange Our company currently suffers from a mismatch between demand and limited supply of liquid shares. "Hidroelectrica's listing initially increased the chances of a transition to emerging market status, considering the size and liquidity of the company, but as we move away from the IPO, the liquidity of the share decreases, one of the reasons being the fact that at the IPO, local investors, who are less active, they received a higher allocation compared to the external ones", pointed out Alexandru Combei.

• "It is expected that a share will perform positively after the IPO, if it came to the market at a decent valuation"

According to BRD Asset Management's Chief Investment Officer, the upward trend in Hidro's share price since the listing is justified by several factors: 1) a share is generally expected to perform positively after the IPO, if it came to the market at a decent valuation ; 2) in the last twelve months there was a favorable context on foreign markets but also on the local market where the demand for shares (from local actors, both institutional and retail) exceeded the limited supply of liquid shares; 3) Hidroelectrica benefited from a favorable hydrological context throughout 2023 relative to the historical average, but especially at the level of 2022, which made a comparison of the financial results favorable.

• "For electricity prices, the baseline assumption would be a modest decline, especially from the 2022/23 level"

According to the analyst, in the short term (a few months) the prospects for the price of the H2O share depend on the demand and supply of shares, and given that there is currently an important demand for shares from natural buyers, Hidroelectrica should have support.

"In the medium term (the next few years), the evolution of the action depends on the fundamentals, mainly on the evolution of the electricity price and electricity production. These two fundamentals are not very encouraging. As for production, it should fall slightly towards the historical average. For electricity prices, the baseline assumption (in the absence of another constraint on the natural gas market in Europe) would be a modest decline, especially from the 2022/23 level.

In this context, the dividend yield should also drop to single-digit levels", concluded Alexandru Combei.