DB starts Elia Group at "hold", citing asset growth tempered by returns

Elia SA

11/09/2023 11:39

** Deutsche Bank initiates coverage of Elia Group  ELI.BR 
at "hold", citing its "best-in-class" regulatory asset base
(RAB) growth, tempered by returns, with nevertheless in the long
run offer potential
    ** Elia has the highest regulatory asset base (RAB) growth
out of all covered networks, DB says, with 14% CAGR 2022-25 vs
7% sector average
    ** Despite the group's low return on regulated equity (RoRE)
vs peers, DB expects there is scope for improvement in the
initial allowed returns that have been set for the next
regulatory period, which starts in Germany and Belgium in 2024, 
although the outcome remains uncertain
    ** The broker's key assumption is that both networks have
their long run RoREs improved about 150bps, mainly reflecting
higher sovereign debt yields
    ** "We also see upside potential to Elia's German capex
plans in particular, with the latest national grid development
plan still to be finalized" - DB
    ** Ultimately, the broker expects "long run returns to be
higher, reflect the regulatory methodology and incentivise
investment
    ** DB values Elia on an implied about 26x P/E 2024 estimate
and a 25% premium to RAB 2023 estimate
    ** Out of six analysts that cover the Belgian company, two
rate the stock "strong buy"/"buy", ​four rate "hold" 


 (Reporting by Mariana Abreu)
 ((Mariana.abreu@thomsonreuters.com))