Goldring has a price target for Hidroelectrica shares between 129.2 and 131.5 lei

The analysis department of the brokerage house Goldring has a price target for Hidroelectrica (H2O) shares between 129.23 lei and 131.56 lei, in the next twelve months, according to a report published on the company's website signed by Roxana Stejerean and Tamara Sardi.

It is an estimate slightly above the Hidro share price yesterday, at 12:30, of 126.8 lei.

"The information that was the basis for establishing the price range is based on the income and expenditure budget for the following period, the preliminary results for the year 2023, as well as specialists' estimates regarding the economic recovery but also regarding the price of electricity and the maximum flows of Danube", the document states.

According to the report, the 2024 forecast for Hidroelectrica's total electricity production, taking into account the existing hydrological conditions and the estimates until the end of the year, amounts to 17.3 TWh compared to the previous estimate of 16.3 TWh.

The dividends distributed by Hidroelectrica in the period 2020-2023 are on an upward trend. If in 2020 the company allocated dividends of two billion lei, in 2023 the amount distributed amounted to 4.3 billion lei, according to the Goldring report.

"Taking into account the preliminary value (2023) related to the issuer's revenue and expenditure budget, and considering a distribution rate of 90%, according to the issuer's dividend policy, we estimate that in 2024 Hidroelectrica would distribute dividends worth 5, 4 billion lei", the document states.

Thus, the dividend per share is 12.05 lei, which is equivalent to a gross yield of 9.5%, compared to the price of the securities yesterday at lunchtime.

For the evaluation of the Hidro share, the team from Goldring used the method of discounting future cash flows and the comparative method with multiples of evaluation of similar companies in international markets. In terms of the comparison method, analysts point out significant disparities in valuation parameters such as PER (Price/Earnings Ratio), P/BV (Price/Book Value), EV/CA (Enterprise Value/Sales) and EV/EBITDA.

For example, Hidroelectrica has a PER of 9.12, while the average of the sample is 20.21, and the median is 14.44. "This discrepancy suggests that the market perceives Hidroelectrica's earnings potential as below the sector average, possibly reflecting a more reserved outlook on the company's future financial performance," the report states.

Regarding the P/BV ratio, Hidroelectrica registers a value of 2.53, significantly exceeding the average of the sample, which stands at 1.57.

"Investors give a more generous valuation to Hidroelectrica's assets, which can be interpreted differently depending on the perception of their quality and the confidence of investors in the perspective of increasing the book value", according to the document.

Companies comparable to Hidro include Enel from Italy, Iberdrola from Spain, Fortum Oyj from Finland, Veolia from France or Verbund from Austria.

Through the comparison method, the Goldring team obtained a price of 131.56 lei for Hidroelectrica shares, according to the report. Regarding the method based on the discounting of cash flows, the document mentions that the forecasts were made in the medium term, with the period 2023-2026 being considered a medium investment term.

"To determine the target price, the historical results related to the period 2020-2022, the preliminary results related to the year 2023, as well as the income and expenditure budget of the issuer, but also its historical performance were taken into account", the report states.

The target price resulting from the application of this method for the Hidro share is 129.23 lei, according to the Goldring report.

For this year, Hidroelectrica estimates that it will obtain a net profit of 4.84 billion lei, 20% below the preliminary one of last year, of about six billion lei, according to the documents related to the Hidro shareholders' meeting on February 28, published on the company's website.