Verbund, CEZ to enjoy extra profitability despite price cap - Citi

VERBUND AG

06/10/2022 10:55

** Citi sees upside to 2023-24 consensus earnings
expectations for Czech utility CEZ  CEZP.PR  and Austrian
hydropower producer Verbund  VERB.VI  despite the EU's proposed
energy price cap for low-cost electricity generators
    ** EU energy ministers agreed last week to limit to 180
euros/MWh the revenues of non-gas fuelled generators
    ** The brokerage upgrades state-owned CEZ to "buy/high risk"
from "neutral" and Verbund to "neutral" from "sell", as it
expects both groups to offer attractive near term cashflows and
dividends and a more attractive valuation after recent share
price correction 
    ** "By using this price cap for the 2023-24 period, we are
12-13% above consensus for Verbund on EBITDA level and 54-32%
for CEZ as the market has not reflected the raising power price
environment to the full extent," the brokerage says 
    ** According to the brokerage, CEZ and Verbund have the
highest earnings leverage to power prices in Europe, which comes
from their outright power exposure (25TWh hydroproduction at
Verbund and 31TWh nuclear and 15TWh lignite volumes at CEZ)
    ** Assuming no extraordinary taxes are imposed, which Citi
says is currently the main risk, CEZ and Verbund are expected to
deliver dividend yields above 10% and about 5% over the next
three years, it adds
    ** Citi also adds there is high probability that excess
cashflow will be paid out in the form of dividends rather than
through windfall profit taxes, as governments are the majority
owners of both companies
 (Reporting by Diana Mandiá)
 ((diana.mandiaalvarez@thomsonreuters.com))