PPC || BUY | CP: EUR 7.87 | TP: EUR 12.20
4Q22 results – Strong last quarter, drives annual EBITDA recurring above management Guidance Strong 2023e outlook, with EBITDA target raised to EUR 1.1bn (excluding the potential ENEL Romania acquisition)
Facts: PPC reported in 4Q22 turnover of EUR 2,170m (+34% YoY, 6% below our estimate), and recurring EBITDA of EUR 309m (+27% YoY, 9% above our estimate). Finally, PPC reported IFRS net profits of EUR 161m vs. profits of EUR 24m last year. On a FY22 basis, the utility reported turnover of EUR 11,253m (+97% YoY), recurring EBITDA of EUR 954m (+9% YoY), IFRS EBITDA of EUR 651m (burdened by EUR 244m from the tax on the windfall profits, -21% YoY) and IFRS net loss of EUR 9m compared to net losses of EUR 18m in 2021. Management upgraded the target for 2023 recurring EBITDA to EUR 1.1bn.
4Q/FY22 key P&L results
EUR m | FY21 | FY22 | Y-o-Y change | Consensus | Actual vs. Consensus | 4Q21 | 4Q22 | Y-o-Y change | Optima bank | Actual vs. Optima |
Turnover | 5,706 | 11,253 | 97% | 2,009 | 2,690 | 34% | 2,869 | -6% | ||
EBITDA | 821 | 651 | -21% | 244 | 309 | 27% | 283 | 9% | ||
Recurring EBITDA | 872 | 954 | 9% | 866 | 10% | 245 | 283 | 15% | 283 | 0% |
Net income* | -18 | -9 | -52% | -49 | -82% | 24 | 161 | 576% | 22 | >100% |
Source: Optima bank, The Company
Analysis: PPC’s domestic sales volume in FY22 dropped by c.6.2% YoY (or 2,016 GWh) to 29.9m MWh, driven by the 1.6% YoY decrease in market demand and the 1.9% market share erosion (average market share 62.4% in 2022 vs. 64.3% in 2021). However, total revenues jumped by 97% YoY to EUR 11,253m on tariffs increases driven by the skyrocketing wholesale market prices (average wholesale price at EUR 279.9/MWh in 2022 vs. EUR 116.4/MWh in 2021). On the expenditures front, fuel expenses advanced by 80.5% YoY at EUR 2,611m, driven by the skyrocketing natural gas costs (TTF gas futures at EUR 122.1/MWh in 2022 vs. EUR 46.1/MWh in 2021) and to lesser extent the c40% oil-related costs increase. The jump in CO2 prices (average CO2 costs at EUR 81/ton in 2022 vs. EUR 52.8/ton a year ago) also drove CO2 costs to EUR 1,037.2m from EUR 699m in 2021. Additionally, amid a spike of the average DAM price from EUR 279.9/MWh in 2022 vs. EUR 116.4/MWh in 2021, energy purchase costs increased by almost 4x YoY to EUR 4,720m. Moreover, personnel costs rose by c5% YoY to EUR 768.6m, and finally, after EUR 59.7m bad debt provision reversal in 2021, bad debt provisions jumped to c. EUR 207.5m in 2022, signaling an increased, yet controlled pressure on collections following the tariff spikes. Below EBITDA, depreciation expenses were lower by 2.3% YoY at EUR 640m, while net financial expenses rose significantly YoY to EUR 289m in 2022 vs. EUR 200m last year.
FCF generation turned positive in 2022 at EUR 851m mainly due to due to the WC release of EUR 1.1bn during 4Q22 and the EUR 1.3bn proceeds from the HEDNO sale, which more than offset the increased capex or EUR 686m. Consequently, Group net debt dropped by EUR 500m ytd to EUR 1,39m, implying a net debt/EBITDA of 1.46x.
Divisional profitability split: PPC released also divisional EBITDA figures for the year, with conventional generation divisional contributing EUR 27m in FY22 (vs. EUR 643m last year), while on the other hand supply generated positive EBITDA of EUR 522m vs. losses of EUR 202m a year ago. Distribution contribution was 8% lower at EUR 376m (down by EUR 33m YoY) and finally RES contributed group EBITDA with EUR 29m vs. EUR 22m in 2021 on increased capacity.
Conference Call Highlights: a) Management raises annual guidance for 2023e to EUR 1.1bn, b) Ptolemaida V lignite plant in commercial operation in 3Q23 (already in operational testing mode) c) expects to add 400MW RES capacity by 2023 end, and c1GW in 2024e (excluding acquisitions) d) RES capacity currently at 600MW (of which 278MW completed and ready to electrify) e) execution programme is executed with small delays, 80% of 2026 RES capacity target already secured, in terms of licenses and land, e) dividend payout policy to commence from FY23, f) targets to complete the ENEL Romania acquisition in 3Q23e.
Conclusion: PPC reported a strong set of results (excluding the one-off hit from the tax on windfall profits), while at the same time managed to contain the unpaid bills, execute its RES investment programme and lowered its net debt. Taking into account also the normalization of the energy crisis, the RES additions and the renewal of high voltage contracts in 2023e, we expect that the upgraded annual EBITDA target seems achievable, which in turn will allow the relaunch of the dividend policy. We reiterate our Buy recommendation for the stock, as the company sticks to its promising business plan.