Prime Transaction estimates a value of 46.3 lei for the Transelectrica share, below the market price

The analysis team of the Prime Transaction brokerage house estimates an intrinsic value of 46.3 lei for the Transelectrica (TEL) share, below yesterday's mid-session market price of 47.4 lei, as shown in the attached report.

"Transelectrica is an essential player in the Romanian energy market, enjoying a natural monopoly on the electricity transmission segment. Thus, the company is the only one that can make the connection between the electricity producing companies and those whose activity is to supply it to the final consumers", the report states.

According to the document, the transport tariffs that form the basis of the company's revenues are established by ANRE based on a "revenue cap" type model, which does not seek to maximize profit, but to ensure the necessary conditions for the continuation of energy transport activities.

"The last five years have been full of events that have strongly affected society, from the Covid pandemic to the immediately following energy crisis. Thus, in 2021, the net profit of the company decreased by 99.7% compared to the previous year. This decline was quickly eclipsed by the 2022 result, where the net result ended up being more than three times that of 2020," the Prime report further states.

To value the TEL share, the Prime Transaction team uses a combination of the market multiples method and the future cash flow method.

Through the market multiples method, using the median of the Regulated Energy sector for European companies, the analysts obtained an intrinsic value related to the Transelectrica share of 55.38 lei per share. "Values are also influenced by companies that do not have a business model identical to that of TEL. Additionally, the respective sector is subject to complex regulations, which means that the performances of the constituents can be strongly influenced by legislative changes or the political field", the report states.

For the future cash flow (DCF) method, the analysts used a series of premises for Transelectrica, including "Revenues from the transmission activity lower by 1% in 2024, mainly determined by the decrease in revenues from the allocation of interconnection capacity", "Revenues from system services will register an increase of 60% in the year 2024, to neutralize the net loss of the previous years" or "Increases of more than 20% for the revenues from the balancing activity until 2025, when values similar to 2022 will be reached, after which a constant increase of 5%".

Using the method of future cash flows, Prime arrived at an estimate of the intrinsic value of Transelectrica shares of 43.26 lei.

"Considering the limited number of comparable issuers, we consider more relevant a weighting of the two methods, with 75% in the case of DCF and 25% in the case of the multiples method. Thus we obtain a weighted average value of 46.3 lei/share", writes the team of the brokerage house.

The Prime Transaction Report is not an investment recommendation. The estimated value is not a target price that analysts expect the issuer's stock to reach, but only an intrinsic value, dependent on the confirmation of the assumptions detailed in the report. The report represents general information and is not a substitute for investment consulting services, it is mentioned in the analysis carried out by de Prime, which can be consulted in the attached document.

The most important shareholder of Transelectrica is the Romanian State through the General Secretariat of the Government, which owns 58.7% of the company.