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Public Power Corporation – Company Update
AXIA Research Page 1
PPC S.A.
Utilities / Greece
Reuters/Bloomberg: DEHr.AT / PPC GA
January 28, 2021
Rally based on hopes, upside based on realities
Rating
Buy
vs. Previous
Unchanged
PPC’s share price has delivered a remarkable performance over the last 18 months, with the stock being
up by ~2.3x since our Buy call in November 2019. There is more to come as PPC has departed distressed-
land and its investment case now moves to resemble that of sector leading peers. Since 4Q19 management
has delivered quarter after quarter on the near term actions of its strategic plan, creating a solid track
record and with some support from sector tailwinds is on track to register a ~3.0x growth in recurring
EBITDA for 2020E. We argue that going forward the share price performance of PPC will gradually be more
reflective of value realization and earnings mix. In this context taking a constructive stance on the recently
announced company’s business plan, we have performed a deep dive analysis across all PPC business lines
to better understand the true earnings potential of the business and the valuation sensitivities. Our
analysis suggests that going forward, volatility in PPC’s operating profitability should be limited, with
>70% of EBITDA coming from assets generating highly stable and visible cash flows (distribution, hydro,
RES) and only ~30% of profits exposed to merchant risks (thermal generation, retail supply). Moreover
management’s ongoing efforts to streamline operations should help lower the fixed cost base and
leverage profitability. In this context our estimates point to a 7.3% CAGR recurring EBITDA growth for the
total group for 2020-24, underlined by a 9.0% CAGR of EBITDA coming from non-merchant exposed
activities.
Taking this into account we believe that share price performance going forward should move to reflect
the updated cash flow profile of the group. We have refined our blended valuation method for PPC to now
include apart from multiples and DCF, a SOTP exercise giving us a better understanding of the incremental
value of PPC’s assets. We raise our target price for PPC to EUR 15.10/sh (from EUR 7.30/sh previously)
looking for an upside of >100%, reiterating our Buy recommendation.
PPC’s management with the support of the major shareholder of the company, the Greek State, after
restoring balance sheet and liquidity are now moving to position the company for the next day of
energy transition. In this context the investment program (and leverage) will focus on the distribution
and renewable energy business, while PPC parentCo will be gradually restructured, de-levered and used
as a “cash cow” to support growth of the business and eventually reward shareholders.
The establishment of a dedicated subsidiary to handle the distribution business, and the potential
sale of a minority stake (up to 49%) in the subsidiary are seen as the accelerators of this transition of
PPC to a modern integrated utility. Moreover the sale of the asset would act as a major catalyst for the
value crystallization of PPC’s asset base.
With ESG-conscious investor ecosystem increasing by the day, PPC’s success in the execution of the
de-lignitization (fastest in the EU) and the acceleration of its renewables franchise are catalysts to
increase its investor audience and lower its cost of capital. Starting as of 2020, for the first time in
PPC’s history, lignite production is forecasted to fall below the 30% threshold, a KPI that is widely used
by investors’ as coal exclusion screening KPI. Moreover we believe that PPC’s generation could become
net zero carbon by the end of the decade under an accelerated RES roll-out plan.
We view that PPC going forward should be able to claim valuation multiples similar to Western EU
integrated utilities that have already restructure their business model and focus. The company is currently
trading at 5.6x EV/EBITDA for 2020-21, at similar levels with names that maintain heavy exposure in thermal
production (East EU companies) or mounting organizational bottlenecks (EDF). On our target price PPC
would trade at 6.6x-6.0x EV/EBITDA for 2022-23 (which continues to imply a ~30% execution discount vs.
names like Enel, EDP, SSE and Iberdrola).
EUR m
2018
2019
2020E
2021F
2022F
2023F
Revenues
4,741.9
4,931.6
4,638.7
4,445.7
4,293.2
4,232.3
Recurring EBITDA
404
333
909
900
1,074
1,171
Recurring Net Income
(324.7)
(424.5)
28.5
50.4
197.9
281.3
Net Debt/EBITDA
9.1 x
11.1 x
3.9 x
3.9 x
3.3 x
3.1 x
P/E
n.m.
n.m.
54.4 x
30.8 x
7.8 x
5.5 x
EV/EBITDA
9.9 x
14.0 x
5.6 x
5.6 x
4.8 x
4.4 x
Div. yield
0.0%
0.0%
0.0%
0.0%
2.0%
3.1%
Source: AXIA Research
Target Price (€/sh)
15.10
vs. Previous
7.30
Current Share Price (€/sh)
6.68
27/01/2021
Stock Data
Market Cap (EUR m)
1,536.7
Free Float
49%
EV (EUR m)
5,000
Num. of Shares (m)
232.0
Performance (%)
1m
3m
12m
Absolute
-10.6
34.2
55.9
ASE General
-7.2
26.4
-19.4
Day avg. no traded shr (k-12m)
5.90
Price high-12 m (EUR)
7.66
Price low-12m (EUR)
1.45
PPC is the leading producer and supplier of
electricity in Greece with c7.0 million
customers, representing 66% of the Greek
electricity supply market. PPC’s current
generation portfolio consists of conventional
thermal and hydroelectric power plants, as
well as RES units, accounting for c67% of the
total installed capacity in the country.
Shareholders: Greek State 51.12%
Analyst
Argyrios Gkonis
Argyrios.gkonis@axiavg.com
+30 210 7414462
This report was produced and desseminated in
Athens on January 28th , 2021 at 15.20 CET
Public Power Corporation – Company Update
AXIA Research Page 2
Table of Contexts
Section
Page #
A distressed case no more
3
Valuation
4
Risks
7
Distribution Grid-A valuable asset and a more valuable
potential catalyst
8
PPC Renewables (PPCR)-One of the fastest growing RES
platforms in the EU
14
Conventional generation – Legacy business getting leaner
18
Retail supply-The major contributor of 2020 turnaround
23
ESG Considerations – Can PPC get greener?
28
PnL trends – Focus on earnings quality
31
Leverage - Operating cash flow generation allows balance
sheet de-risking and facilitates growth needs and dividend
33
9M20 results review
37
Detailed financials
38
Public Power Corporation – Company Update
AXIA Research Page 3
44.7
-66.3
75.6 87.7
242.6
182
275.3 238.7 211.24
4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20E
9.1 x
11.1 x
3.7 x 3.8 x 3.8 x 3.3 x
2018 2019 LTM 9M20 2020E 2021F 2022F
A distressed case no more
PPC is now 5 quarters operating under a new management and has already started to realize the change in its
course. Near term strategic actions allowed the company to swiftly restore its operating profitability and mend
its balance sheet. This has been reflected both by the share price performance, but also the recent upgrades by
rating agencies. We also highlight the important aspect that a number of internal organizational issues related
to public sector legacy as well as regulatory themes have been tackled. As viability of the company is no longer
an issue, recently management revealed its new business plan targeting the repositioning of the company
during the energy transition era. This was complemented with improved disclosure levels from the company
(i.e. division EBITDA breakdown) allowing us to perform a deep dive on PPC’s earnings and valuation drivers.
Taking into account our findings, the management’s track record and also considering the steadfast support of
the major shareholder of the company (the Greek State) to the new management actions, we argue that PPC
has not only departed distressed-land but is now eying the top tier of Western EU Utilities. As such despite
lowering of our estimates for 2020-21, we revise higher our medium to longer term earnings forecast that along
with more reflective target multiples and lower cost of capital, drive our valuation on the stock higher.
Exhibit 1a. PPC’s recurring EBITDA (EUR m)
Exhibit 1b. PPC’s leverage
Source: The Company, AXIA Research
Specifically in 2020 we expect PPC’s recurring EBITDA to grow by 2.7x y-o-y to stand at EUR 909m. This has been
driven by the realization of the successful tariff increases implemented in 3Q19, while tailwinds related to
energy costs further augmented profitability margins. On the bottom line we expect PPC to book recurring EBT
of EUR 41m compared to losses of EUR 424.4m in 2019. Considering a higher effective tax rate (vs. previous)
we forecast recurring net income in 2020 to stand at EUR 28.5m compared to losses of EUR 424.5m in 2019.
We note that on a reported level figures in 2020 are expected to include i) a positive impact from a legacy
natural gas dispute; ii) a negative impact from payroll (severance payment); and iii) an cEUR 60m impact form
the recently announced measures regarding the Greek RES market (cash settlement in 2021 though).
For 2021 we expect recurring EBITDA to stand at EUR 900m (in-line with guidance) revising lower our previous
earnings estimates taking stock of the volatility in the local power wholesale markets over the last couple of
months (courtesy of newly launched energy exchange) and the recently announced agreement regarding the
lignite anti-trust case.
For 2022 we model for a y-o-y uplift in EBITDA coming from the streamlining of operations and the ramp up of
profitability in RES and grid. Further ahead, the heavy investments of the company in RES and the distribution
grid are expected to accelerate underlying profitability, while the ongoing streamlining efforts (both OPEX and
capital costs) across the organization push profitability higher. To this end, for 2023-24 our recurring EBITDA
and EPS estimates are revised higher by ~5.0% and ~22.0% respectively.
Exhibit 2. PPC’s New vs. Old estimates
EUR m
2019
2020E
2021F
2022F
2023F
2024F
EBITDA-Recurring
New
333.6
909.4
899.6
1,073.6
1,170.6
1,207.1
Old
897.3
1,035.4
1,128.7
1,122.5
1,145.6
New-vs-Old
1.3%
-13.1%
-4.9%
4.3%
5.4%
adj. Net Income
New
(2,057.6)
28.5
50.4
197.9
281.3
266.5
Old
46.1
140.3
212.3
224.4
224.4
New-vs-Old
-38.2%
-64.1%
-6.8%
25.4%
18.8%
Source: AXIA Research
Public Power Corporation – Company Update
AXIA Research Page 4
Valuation
Following our deep dive analysis and updated estimates we have refined our blended valuation for PPC to now
include a DCF-based SOTP to our group level multiples and DCF. Our updated valuation exercise yields a target
price of EUR 15.10/sh (vs. EUR 7.30/sh previously).
On our view the share price of PPC going forward should move to reflect the underlying earnings quality that
has already started to improve driven by management’s efforts to position the company for the energy
transition. The substantial investments in energy distribution and renewable production, along with the lower
footprint in thermal generation and rationalized retail supply margins would allow PPC going forward to claim
valuation multiples similar to Wester EU integrated utilities that have already restructure their business model
and focus.
PPC is currently trading at 5.6x EV/EBITDA for 2020-21, at similar levels with names that maintain heavy
exposure in thermal production (East EU companies) or continue to phase organizational bottlenecks (EDF).
On our target price PPC would trade at 7.8x-6.6x EV/EBITDA for 2022-23, which continues to include a ~30%
execution discount vs. top tier Western EU Utilities like Enel, EDP, SSE and Iberdrola.
Exhibit 3. PPC’s valuation summary
Method
Valuation end-2021
Weight
Multiples (EV/EBITDA)
15.0
33.0%
Group DCF (WACC @5.6%)
13.7
33.0%
SOTP (DCF-based)
17.0
33.0%
Appraised Value per share
15.10
Current share price
6.68
(Downside)/Upside
126%
Source: AXIA Research
Exhibit 4. EU Utilities valuation comps
Company
Country
MCap
P/E (x)
EV/EBITDA (x)
EUR m
FY2020
FY2021
FY2022
FY2023
FY2020
FY2021
FY2022
FY2023
EU Integrated Utilities
CEZ, a. s.
Czech Republic
10,830
12.6
13.3
12.4
11.5
6.4
6.7
6.7
6.4
EDP - Energias de Portugal, S.A.
Portugal
20,102
23.2
21.1
19.7
18.6
10.7
10.4
10.0
9.8
Enel SpA
Italy
83,757
16.6
15.3
14.2
13.5
8.6
8.2
7.8
7.6
RWE Aktiengesellschaft
Germany
23,812
22.3
18.0
18.9
22.4
7.3
6.7
6.6
7.2
E.ON SE
Germany
22,908
14.5
12.9
10.1
9.7
8.4
8.0
7.5
7.4
Uniper SE
Germany
10,620
15.5
16.4
17.6
15.5
8.0
8.3
8.5
7.9
Endesa, S.A.
Spain
22,774
12.3
13.3
12.8
12.7
7.6
7.6
7.4
7.2
Iberdrola, S.A.
Spain
69,601
20.6
19.1
17.6
16.7
11.3
10.5
9.7
9.2
Naturgy Energy Group, S.A.
Spain
21,477
21.5
17.4
17.0
16.1
10.0
9.2
9.2
8.9
Audax Renovables, S.A.
Spain
920
105.4
35.2
23.4
NA
20.5
15.5
12.4
NA
EVN AG
Austria
3,363
16.3
15.0
14.2
13.6
7.5
7.7
7.3
NA
VERBUND AG
Austria
26,074
43.5
43.7
38.5
34.0
22.0
21.5
19.2
17.9
ENGIE SA
France
30,719
17.2
12.5
11.6
11.0
6.7
5.9
5.8
5.6
Electricité de France S.A.
France
32,343
19.4
15.5
13.4
10.1
5.1
4.7
4.5
4.2
BKW AG
Switzerland
4,977
19.6
18.4
16.1
17.1
9.4
8.8
8.2
7.8
Fortum Oyj
Finland
18,166
14.0
14.7
15.2
13.7
11.1
9.3
9.6
9.2
AB Ignitis grupe
Lithuania
1,619
12.5
12.0
11.6
NA
9.9
8.4
7.9
7.6
SSE plc
United Kingdom
17,182
NA
16.8
16.0
15.4
NA
12.0
11.4
11.0
Average
24.0
18.4
16.7
15.7
10.0
9.4
8.9
8.4
Median
17.2
16.0
15.6
14.6
8.6
8.3
8.0
7.7
PPC
Greece
1,564
54.4
30.8
7.8
5.5
5.6
5.6
4.8
4.4
PPC @ AXIA TP
Greece
3,503
123.0
69.5
17.7
12.5
7.7
7.8
6.6
6.0
Source: AXIA Research, Capital IQ
Public Power Corporation – Company Update
AXIA Research Page 5
Exhibit 5. PPC’s SOTP valuation
Division
EV (2023)
EV/EBITDA (x)
% of EV
Implied alternative metric
EUR m
2021
2022
2023
Oil
182
2.0
2.1
2.2
2.1%
0.5x
EV/RAB (2023)
Hydro
1,857
10.4
9.8
9.6
21.4%
0.6m
EV/MW
Natural gas
154
3.4
3.7
3.0
1.8%
0.0m
EV/MW
Lignite
-868
NM
NM
NM
NM
-1.3m
EV/MW
Conventional generation (i)
1,324
NM
11
6
15.3%
Supply (ii)
1,700
3.9
3.8
4.6
19.6%
EUR360
EV/Customer
Total PPC parentCo (i)+(ii)
3,024
6.9
5.3
5.1
34.9%
RES (PPCR) (iii)
1,401
45.3
31.7
16.3
16.2%
0.8m
EV/MW (2023)
Distribution (HEDNO) (iv)
4,245
9.9
9.4
8.7
49.0%
1.2m
EV/RAB (2023)
Total EV (i)+(ii)+(iii)+(iv)
8,671
9.7
8.1
7.4
Net Debt (2023)
3,575
Other liabilities
408
Equity value (2023)
4,688
Per share
20.2
Discount to 2021 (@9.0% CoE)
17.0
Source: AXIA Research
Key underlying assumptions for our SOTP valuation:
Oil fired units regulated asset base to decline from EUR 835m in 2017 to EUR 360m in 2023E as island
interconnections progress. Still some unit to remain at cold reserve claiming capacity payments. We value
the business at 0.5x its 2023E RAB.
Hydro production levels are assumed at the 10-year average level of 4.3TWh pa. We assume an
improvement in spreads due to tighter power markets and profitability moving along merchant prices. Our
DCF assumes a WACC of 6.0% and a terminal value EBITDA multiple of 10.0x (precedent transactions point
to >12x multiples)
Natural gas production to remain profitable at gross margin level with clean spark spreads of ~EUR 9-
10/MWh and EBITDA spreads to ~EUR 6-7/MWh. Our DCF assumes 9.5% WACC and 5.0x exit multiple on
EBITDA
Lignite production is modelled to subside along with capacity shut downs. We model for positive gross
margin levels for the new lignite unit (post 2024). Fixed costs to decline along management efforts but still
the operations to remain EBITDA-negative. We discount the negative cash flows until the end of operations
(2028 included) and then assume the NPV of mines restoration (EUR 410m as per PPC’s FS) and units
dismantling costs (discounted to present). We note the potential upside to this part of our valuation from
the approval of PPC’s compensation claims for the early shut down of lignite units (could have more clarity
towards end of 1Q21)
For the supply business we assume that profitability (EBITDA) per customer will gradually normalize from
EUR 1117 in 2020E to levels close to EUR 80 in 2023 (below guidance margins but still above EU average
due to idiosyncratic issues for the local electricity market). For our DCF explicit period (2024-28) we have
EBITDA margin of 6.0% on average. WACC at 9.0%. Our valuation implies an EV per customer of EUR 360, a
figure that is at the low end of implied precedent transactions in the Western EU retail space.
We value PPCR using a DCF-based SOTP for each asset class. We run the assets for 25-years (30 years for
small hydro) assuming no further repowering or salvation value. In respect of capacity we assume that PPCR
will reach its 1.5GW target for installed capacity by the end of 2023 and then will grow to 2.0GW by end
Public Power Corporation – Company Update
AXIA Research Page 6
2027 taking into account in our calculations the required capex needs. In respect of WACC we assume 6.0%.
We also adjust below group EV line for pending 2024-27 capex needs (other liabilities).
For the distribution asset (HEDNO) given that there is an ongoing process for the sale of a minority stake
in the asset, valuation will be heavily depended on the shareholders agreement structure and the envisaged
capital structure and payout policy. In this context we examine a number of traditional valuation methods
both capital structure agnostic (EV-based multiples, DCF) but also earnings and dividend based (adjusting
for assumed capital structure). We set as basis for our valuation 2023. Our final price tag on the asset stands
at EUR 4.2bn (EV), which implies 1.2x EV/RAB (2023E) and 8.7x EV/EBITDA (2023E). Currently the entire EV
of PPC group stands at ~EUR 5.0bn.
We do not include any value for the company’s real estate assets (non-industrial properties), noting
though that management has indicated intentions to exploit these assets further down the road.
From our appraised EV we then adjust for the net debt at group level by 2023, plus the remaining capex
requirements for the RES business (as per our valuation approach for the specific segment)
Discount our 2023 –based equity value to end of 2021 using a 9.0% CoE assumption
Exhibit 6. PPC Group DCF exercise
EUR m
2021
2022
2023
2024
2025
…
TV
adj.EBITDA
899.6
1,073.6
1,170.6
1,207.1
1,173.5
…
1,147.0
Tax
(2.7)
(49.3)
(75.6)
(101.3)
(94.1)
…
(103.1)
Capex
(792.2)
(941.3)
(951.4)
(773.1)
(682.3)
…
(447.0)
WC / Other
31.7
(16.4)
(10.0)
(10.0)
(1.6)
…
-
FCF
136.4
66.7
133.6
322.7
395.5
…
596.9
Sum of NPVs
2,520.3
Terminal Value
4,571.9
EV
7,092.2
Risk Free
1.00%
Net Debt (end-2020)
3,510.8
Market Risk
7.0%
Lignite restoration NPV
410.0
Beta
1.2
Equity Value
3,171.4
CoE
9.0%
WACC
5.6%
TP
13.7
Cost of Debt
4.00%
Exit Multiple
6.5x
Num of shares
232.0
Tax
24%
Current Price
6.68
Equity/Debt
40%
Upside/(Downside)
105%
WACC
5.6%
Source: AXIA Research
For our multiples based valuation we have used targeted the EV/EBITDA trading multiples for 2021-23 of EU
integrated utilities sector assuming a 10% discount. Thereafter we adjusted for liabilities and present value
(using 9.0% CoE)
Exhibit 7. PPC group multiple based calculation
Multiples
Value
EUR m
Target
multiple
EV/EBITDA
(x)
EV (EUR m)
Net Debt and
liabilities
(EUR m)
Equity Value
(EUR m)
CoE
TP
2021 adj.EBITDA
900
7.5
6,742.4
4,097.0
2,645.3
0.0%
11.4
2022 adj.EBITDA
1,074
7.2
7,770.4
3,974.6
3,795.8
9.0%
15.0
2023 adj.EBITDA
1,171
7.0
8,194.5
3,984.6
4,209.9
9.0%
15.3
Median
15.0
Source: AXIA Research
Public Power Corporation – Company Update
AXIA Research Page 7
Risks and sensitivities
Political Risk
We reckon that the resolve of the new Greek government to enable the restructuring of PPC and allow
management to seamlessly implement its restructuring agenda has been a key factor for PPC’s story.
Importantly significant and long awaited changes have been implemented on the legislative and the regulatory
front over the past 18 months. While the Greek State remains the biggest shareholder of the company, its
supportive stance will remain important for the company. To this end a shift in policy that could use PPC as a
tool to support a government’s social policy is a key risk for the company. A change on the political stance is
not on our radar, while we note that a further reduction of the State’s participation in the company would
materially reduce one of the major risks for PPC’s case
RES execution risks
Core to management’s strategy for PPC is the expansion of the RES business. As the company is starting from a
very low base in terms of capacity, significant effort will need to be put to support PPC Renewables management
and balance sheet to deliver on the targets. That said increasing competition in the Greek RES market from
producers with size and track record could challenge PPCR’s efforts. Also delays in the licensing of the various
projects and the roll-out of the pipeline would have an impact on the timely implementation of the company’s
RES targets and value creation.
Commodity/merchant cost exposure
PPC’s thermal power production fleet is exposed to CO2 and natural gas price fluctuations (oil activity is fully
regulated with no exposure on the price). With PPC’s thermal assets sitting on the higher end of the merit order
and having limited price setting capacity, increases in prices would challenge the spreads of the units. Moreover
investments in new CCGT units by IPPs could also increase competition in the CCGT market. In respect of
exposure to wholesale market sensitivity (recall that PPC holds a net long position of about 10-12TWh thus
benefits from lower wholesale prices) we estimate that a 10% move of assumed SMP in each direction has a
6.0% impact on our group EBITDA (~EUR 50-60m). For CO2 prices, a 10% move vs. our base case (average CO2
price of EUR 25/MT in 2021-25) has an estimated ~3.0% impact on EBITDA or EUR 30m (the impact subsides
going forward).
Retail supply sales mix and tariffs
PPC retail supply division is a margin based business driven by the company’s ability to maintain adequate
spread between wholesale supply costs and retail tariffs while preserving its client base. While switching rates
in the domestic market have increased in the last 12-18 months, they still remain at the lower end of EU
markets, suggesting a slow erosion. Still household and commercial customers that are the highest margin part
of the business are targeted by competition (cherry picking) something that could affect the sales mix of PPC.
In respect of tariffs sensitivity, we estimate that a 5.0% move in realized tariff has a ~15% impact on group
EBITDA (~EUR 150m). On our modeling base case, we assume realized tariff will decline by 1.7% CAGR in 2020-
25.
Exhibit 8. PPC’s key sensitivities table
Size
Move vs. base
case
Impact on
2022E EBITDA
(%)
Impact on
2022E EBITDA
(EUR m)
Base case
assumption
(2022)
Base case 2022
vs. 2020* (%)
Realized tariff
(EUR/MWh)
+/- 5.0%
~15.0%
~150m
EUR 102.5/MWh
-1.5%
Wholesale Price
(EUR/MWh)
+/- 10%
~6.0%
~55m
EUR 54.0/MWh
+20.0%
CO2 Price
(EUR/MT)
+/- 10%
~3.0%
~30m
EUR 35.0/MWh
+40.0%
Nat gas price
(EUR/MWh-th)
+/- 10%
~2.3%
~20m
EUR 17/MWh-th
+30.5%
Source: AXIA Research, *realized prices by PPC
Public Power Corporation – Company Update
AXIA Research Page 8
2.8
2.9
3.0
2.9
3.0
3.1
3.0 3.0
2012 2013 2014 2015 2016 2017 2018 2019
0.50
0.45
0.39 0.38 0.38 0.40 0.41 0.42
2012 2013 2014 2015 2016 2017 2018 2019
Distribution Grid-A valuable asset and a more valuable potential
catalyst
Distribution activity is one of the backbones of PPC’s value proposition. Through its 100% subsidiary, HEDNO,
PPC is the sole owner and operator of the distribution (low voltage) system in Greece with a natural monopoly.
HEDNO is by far the largest regulated asset in the country with a RAB of EUR 3.0bn (2020) and EBITDA of EUR
0.4bn (~40% of PPC’s EBITDA). As global energy transition trends bring DSO’s to the forefront, HEDNO will play
a key role in PPC’s transformation efforts. In this context PPC is targeting to deploy more than EUR 2.0bn in the
business in the coming 5 years (>50% of its scheduled capex), to upgrade and grow the asset. This effort is
complemented by a supportive regulatory environment, providing adequate visibility (4+4 year regulatory
period) and returns (2021-25 WACC set at 6.7%). Said efforts target to grow the regulated asset base (RAB) by
6.6% CAGR in 2020-25 and the EBITDA by 4.0% for the respective period.
Amid this positive backdrop, PPC’s management has initiated a process to partially monetize the value of the
business by selling a minority stake (up to 49%) through an international tender that is currently ongoing.
The sale will allow the company i) to crystalize the value of the business (on our valuation HEDNO’s EV accounts
~90.0% of the current EV of PPC and covers 1.2x the group’s net debt); ii) deleverage parentCO; and iii) increase
available firepower to super-boost RES expansion plans and the company’s green energy transition (carbon
neutral before 2030?).
Exhibit 9a. HEDNO RAB (EUR bn)
Exhibit 9b. HEDNO EBITDA (EUR bn)
Source: RAE, PPC, AXIA Research
High regulatory visibility
HEDNO’s operations are regulated by the Greek energy market watchdog, RAE. Remuneration scheme is based
on an approved WACC that is based on a fairly standardized formula, ensuring recovery of all cost items. As of
2021, a new 4-year regulatory period is scheduled to start under an updated framework (vs. 1-year regulatory
periods up until now). The new framework apart from revising and standardizing WACC methodology, provides
for a longer visibility up to 2028, including WACC uplifts for major projects. Also new methodology allows PPC
to benefit by additional returns through OPEX efficiencies (mainly on the second part of the regulatory term),
a feature that was not available under previous scheme. In this context WACC had been stable at 7.0% for 2016-
20, while for the 2021-25 regulatory period understanding is that average WACC will settle at 6.7% (final figures
to be confirmed by end of March).
Public Power Corporation – Company Update
AXIA Research Page 9
7.0% 7.3%
9.2% 9.2%
7.0% 7.0%
9.2% 9.2%
7.0% 6.9%
8.2%
9.2%
7.0% 6.5%
7.8%
9.2%
6.7% 6.3%
7.5%
HENDNO (Electricity DSO) ADMIE (Electricity TSO) DESFA (Nat. Gas TSO) DEPA Infrastructure (Nat. Gas DSO)
2017 2018 2019 2020 2021
3,050
425
1,680
176.5
793
185
596
65
RAB EBITDA
HENDNO (Electricity DSO) ADMIE (Electricity TSO) DESFA (Nat. Gas TSO) DEPA Infrastructure (Nat. Gas DSO)
Exhibit 10. Greek regulated assets approved WACC*
Source: RAE, AXIA Research, *higher WACC of natural gas sector operators mainly attributed to lower capital structure gearing
Exhibit 11. Greek regulated assets RAB and EBITDA for 2019 (EUR m)
Source: RAE, AXIA Research
Investments to grow RAB
Following a period of tight financial conditions for PPC, HEDNO has been underinvested with realized capex
coming lower vs. regulatory approved budget. The new business plan for the company envisages a heavy
investment period (2021-24) with total capex expected to exceed EUR 2.0bn. Management has identified
specific strategic projects that will upgrade the quality of the asset and catch up with growing sector needs and
also grow the asset base. In this context main investments will be focused on i) roll-out and expansion of smart
meters; ii) upgrade of network control centers and IT systems; iii) network and energy quality. Management
has also said is considering going forward additional investments outside the regulated business lines focusing
on development of fiber network infrastructure.
Exhibit 12. HEDNO 2021-25 capex plan
EUR m
2021
2022
2023
2024
2025
Support
28.0
64.7
61.8
45.0
91.7
Revamp
3.6
5.2
16.4
22.6
12.3
Recurring
183.5
185.0
185.0
185.0
193.0
Growth
57.3
223.3
231.1
218.9
181.2
Other investments
37.3
26.0
20.0
14.6
13.1
Total Gross Capex
310
504
514
486
491
(-) Subsidies
30.0
30.0
30.0
30.0
30.0
(-) Customer contribution
80.0
80.0
80.0
80.0
80.0
Net Capex
199.6
394.3
404.4
376.1
381.3
Source: HEDNO, AXIA Research
Upon the execution of the investment plan, HEDNO’s RAB is expected to grow by 6.0% CAGR during 2020-25
and reach on our estimates EUR 3.9bn at the end of the period, vs. EUR 3.0bn in end-2019. We note that any
subsidies/grants and customer contributions received to finance various parts of the capex are excluded from
the RAB calculation (account though on IFRS D&A).
Public Power Corporation – Company Update
AXIA Research Page 10
8.0% 8.0% 8.5% 7.7% 7.0% 7.0% 7.0% 7.0% 7.0% 6.7% 6.7% 6.7% 6.7% 6.0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E
Exhibit 13. HEDNO RAB calculations
EUR m
2021F
2022F
2023F
2024F
2025F
RAB Year Start
2,925.0
3,007.7
3,281.6
3,554.7
3,788.7
(+) Gross Capex
309.6
504.3
514.4
486.1
491.3
(-) Customer contributions
-80.0
-80.0
-80.0
-80.0
-80.0
(-) Subsidies
-30.0
-30.0
-30.0
-30.0
-30.0
(-) Regulatory depreciation
-117.0
-120.3
-131.3
-142.2
-151.5
RAB Year End
3,007.7
3,281.6
3,554.7
3,788.7
4,018.4
Average RAB
2,966.4
3,144.7
3,418.2
3,671.7
3,903.5
Source: AXIA Research
Returns outlook
Over the last years (2014-20) WACC for the distribution activity has been stable at 7.0% (revised annually)
despite the significant drop in GGB yields offering a very attractive spread. For 2021-2024 WACC will average
6.7%, maintaining one of the highest returns in the EU DSO space, as RAE opts to incentivize HEDNO to
undertake all necessary network upgrade and growth investments.
For the period post 2024, management has commented that the new regulatory framework will not allow
returns to substantially deviate from the previous regulatory period. Also at that point expectation is that
benefits from OPEX efficiencies will start to be increasingly allocated to HEDNO and along with the potentials
for “premium” on specific projects should support realized returns. On our modeling exercise we assume 2025-
28 average realized WACC of 6.0% and not additional cost benefits and premiums on RAB.
Exhibit 14. HEDNO WACC outlook
Source: RAE, Bloomberg, AXIA Research
HEDNO’s realized EBITDA (IFRS) is derived by the allowed regulatory return (EBIT) adding also the IFRS derived
D&A charges (IFRS PP&E stand at EUR 4.9bn vs. regulated assets base of EUR 3.0bn).
Exhibit 15. HENDO Regulated and IFRS returns
EUR m
2021E
2021E
2022E
2023E
2024E
2025E
Average RAB
2,949.3
2,966.4
3,144.7
3,418.2
3,671.7
3,903.5
Allowed WACC
7.0%
6.7%
6.7%
6.7%
6.7%
6.0%
Regulatory return (EBIT)
206.5
198.7
210.7
229.0
246.0
234.2
IFRS D&A
220
232
247
260
272
283
…o/w Regulated D&A
119.0
117.0
120.3
131.3
142.2
151.5
Realised IFRS EBITDA
426.5
430.7
457.6
488.8
518.5
517.4
…o/w/Regulated EBITDA
325.4
315.7
331.0
360.3
388.2
385.8
Source: AXIA Research
OPEX and Revenues
The main OPEX item for HEDNO is payroll that accounts on our estimates for about 70% of the total opex, with
HEDNO employing about 5,800 people (~40% of PPC’s manpower). In 2019 approved payroll stood at EUR
252.6m. Other cost items include fees paid to PPC for various supporting services, third party fees for services
Public Power Corporation – Company Update
AXIA Research Page 11
61.2%
2.8%
10.8%
4.2%
10.4%
1.5%
2.2%
4.9%
2.1%
National broadcaster
Municipality taxes
VAT
Other
RES fee
PSO
Distribution
Transmission
Electricity Supply
Payroll,
63.9%
Materials &
Consumables
, 11.8%
PPC, 4.5%
Other, 19.8%
and materials and utilities. Total OPEX In 2019 stood at EUR 408m (pro-forma). Going forward expectation are
that opex will increase in 2021-22 mainly on the back of higher third party fees, courtesy of grid revamp projects.
Thereafter OPEX is seen on a declining base considering streamlining efforts including headcount reduction
(natural attrition and VRS).
On the revenues side, required revenues are proportionally allocated to consumers based on their consumption
profile. HEDNO carries no collection’s risk as electricity supply companies (with PPC being the largest player)
are responsible for collections and allocation of revenues. Additional revenues streams for HEDNO (not
regulated) are consumer contributions for new connections (traditionally average EUR 80m p.a.) and other
smaller revenues streams (sale of unused materials, other services).
Exhibit 16a. HEDNO OPEX pro-forma breakdown
(2020E)
Exhibit 17b. Retail electricity tariff structure in
Greece
Source: AXIA Research
Exhibit 17. HEDNO pro-forma PnL
EUR m
2018A
2019A
2020E
2021F
2022F
2023F
2024F
Regulated Revenues
711
728
735
746
792
813
833
Customer contributions
85.2
87
80
80
80
80
80
Other
23.1
18
20
20
20
20
20
Total Revenues
819
833
835
846
892
913
933
y-o-y
0.3%
1.4%
5.3%
2.4%
2.2%
OPEX
411
408
411
421
447
432
417
y-o-y
0.7%
2.6%
6.1%
-3.5%
-3.4%
EBITDA
408.0
425.0
426.5
430.7
457.6
488.8
518.5
…o/w regulated
325.4
315.7
331.0
360.3
388.2
D&A
220
232
247
260
272
…o/w regulated
119
117
120
131
142
Net Interest costs
37.5
39.1
45.3
51.3
56.3
EBT
169.0
159.6
165.4
177.7
189.7
Taxes
40.5
38.3
39.7
42.7
45.5
Net Income
128.4
121.3
125.7
135.1
144.2
Source: AXIA Research
Capital structure, funding plan and dividend upstream capacity
Part of the carve-out process of distribution asset from PPC parent and its merger with HEDNO will include the
transferring of distribution related loans to the new entity. The vast majority of the related debt belongs to
supranational institutions EIB (cEUR 1.3bn) and Black Sea Trade and Development Bank (cEUR 0.16bn). Note
that EIB’s debt also carries a guarantee by the Greek State, thus its cost is estimated at no more than 3.0-3.5%.
This should lead to a pro-forma leverage (net debt/EBITDA) of 3.5x on our estimates, which screens well below
sector peers that have average leverage of ~5.0x, considering the cash flow visibility of the assets.
Going forward given the high capex needs, leverage is expected to increase. A key determinant of this will be
the envisaged dividend payment structure that will be agreed on the back of the potential sale of the 49% to a
Public Power Corporation – Company Update
AXIA Research Page 12
minority investor. We think that PPC would be supportive to increase the leverage on the asset and adopt a
generous dividend distribution policy as it will be the only source of cash income from this asset vs. previous
regime (PPC parentCo was entitled to the asset ownership related cash streams).
Exhibit 18. EU Grid operators leverage metrics (LTM)
Company
Country
Net Debt/EBITDA (x)
Total Debt/Capital
EBITDA/Interest (x)
S&P Rating
National Grid plc
UK
6.5
64.1%
5.5
A-
Severn Trent Plc
UK
7.6
86.3%
4.8
BBB
United Utilities Group PLC
UK
7.4
76.0%
4.2
NA
A2A S.p.A.
Italy
3.0
50.2%
16.7
BBB
Snam S.p.A.
Italy
5.8
71.0%
17.1
BBB+
TERNA
Italy
5.0
73.0%
18.9
BBB+
ACEA S.p.A.
Italy
3.9
66.9%
10.6
NR
Enagás, S.A.
Spain
4.9
59.8%
10.0
BBB+
Redes
Spain
4.2
66.1%
10.8
A-
REN
Portugal
6.2
67.1%
7.6
BBB
REN
Belgium
6.5
63.7%
8.6
BBB+
Admie Holding S.A.
Greece
1.8
30.0%
11.5
NR
Median
5.4
66.5%
10.3
HEDNO (AXIA est. 2020E)
Greece
3.5
NA
14.1
NR
Source: AXIA Research, Capital IQ
Being considerate of leverage and credit rating KPIs, we believe that HEDNO could support a hefty dividend
payout that could average ~EUR 120m p.a. for 2021-28, with leverage (net debt/EBITDA) increasing but
remaining close to the 5.0x mark.
Exhibit 19. HEDNO cash flow and leverage estimates
EUR m
2020E
2021F
2022F
2023F
2024F
EBITDA
430.7
457.6
488.8
518.5
517.4
(-) Interest Costs
39.1
45.3
51.3
56.3
61.1
(-) Taxes
38.3
39.7
42.7
45.5
41.5
Operating FCF
353.3
372.6
394.8
416.7
414.7
Capex
310
504
514
486
491
FCF to Equity
43.7
-131.6
-119.5
-69.4
-76.6
Dividend Payments
109.2
113.2
121.6
129.8
118.4
Change in Cash
-65.5
-244.8
-241.1
-199.2
-195.0
Net Debt
1,566
1,810
2,051
2,251
2,446
Net Debt/EBITDA
3.6
4.0
4.2
4.3
4.7
Source: AXIA Research
Valuation
Given that there is an ongoing process for the sale of a minority stake in the asset, on our view valuation will
be heavily depended on the shareholders agreement structure and the envisaged capital structure and payout
policy.
In this context we examine a number of traditional valuation methods both capital structure agnostic (EV-based
multiples, DCF) but also earnings and dividend based on our assumed capital structure. We set as basis for our
valuation 2023. Our final price tag on the asset stands at EUR 4.2bn (EV), which implies 1.2x EV/RAB (2023E)
and 9.1x EV/EBITDA (2023E).
Note that currently the total EV of the entire PPC group stands at EUR 5.0bn.
Public Power Corporation – Company Update
AXIA Research Page 13
5,072
8,721
4,828
6,545
9,399
9,775
3,511
3,537
3,663
2,681
2,934
2,248
P/E
Dividend yield
DDM
EV/EBITDA
DCF
Comparable M&A
Exhibit 20. HEDNO EV valuation (EUR m)
Source: AXIA Research
Exhibit 21. EU Grid-Infrastructure operators valuation comps
Company
Country
MCap
P/E (x)
EV/EBITDA (x)
Dividend yield
EUR m
FY2020
FY2021
FY2022
FY2023
FY2020
FY2021
FY2022
FY2023
FY2020
FY2021
FY2022
FY2023
National Grid
UK
35,240
16.0
16.4
15.2
14.1
12.4
12.4
11.2
10.4
5.6%
5.7%
5.7%
5.9%
Severn Trent Plc
UK
6,408
18.8
22.6
19.1
16.3
13.6
13.9
12.8
12.0
4.2%
4.3%
4.3%
4.4%
United Utilities
UK
7,300
16.1
20.2
20.1
19.1
13.8
14.2
13.8
13.4
4.4%
4.6%
4.6%
4.7%
Veolia
France
12,379
27.6
17.3
14.7
12.6
7.0
6.2
5.9
5.5
3.3%
4.4%
4.9%
5.9%
Suez SA
France
10,662
NM
26.1
21.6
17.5
8.9
8.0
7.5
7.3
3.8%
3.9%
3.9%
3.9%
Elia Group
Belgium
6,893
27.3
26.1
23.6
22.4
14.1
13.5
12.3
11.3
1.7%
1.7%
1.8%
1.8%
A2A S.p.A.
Italy
4,214
14.2
14.2
12.5
NA
6.8
6.6
5.9
5.5
5.9%
6.0%
6.3%
6.5%
Snam S.p.A.
Italy
14,417
13.4
12.9
13.1
12.7
12.5
12.2
11.9
11.5
5.6%
5.9%
6.2%
6.3%
TERNA
Italy
12,454
16.2
15.8
16.0
15.1
11.9
11.6
11.5
11.0
4.4%
4.7%
5.0%
5.4%
ACEA S.p.A.
Italy
3,537
13.2
12.2
11.4
10.8
6.6
6.2
5.9
5.6
4.8%
4.9%
5.2%
5.2%
Enagás, S.A.
Spain
4,994
11.2
11.6
12.0
12.3
9.4
9.9
10.5
11.8
8.8%
8.9%
9.0%
9.1%
Redes
Spain
8,722
13.1
13.1
12.7
12.4
9.6
9.5
9.3
9.2
6.3%
6.3%
6.3%
6.2%
REN
Portugal
1,565
13.5
13.2
13.3
13.1
9.4
9.3
9.3
9.2
7.2%
7.2%
7.2%
7.2%
Admie Holding
Greece
558
13.0
12.7
13.4
12.7
13.1
12.7
13.2
12.6
4.6%
4.2%
4.2%
3.7%
Average
16.4
16.8
15.6
14.7
10.7
10.4
10.1
9.7
5.0%
5.2%
5.3%
5.5%
Median
14.2
15.0
14.0
13.1
10.8
10.7
10.8
10.7
4.7%
4.8%
5.1%
5.7%
Source: Capital IQ, AXIA Research
Median @ EUR 4.2bn
Public Power Corporation – Company Update
AXIA Research Page 14
155 283
665
1,545 1,675 1,805 1,935 2,065 2,065 2,065 2,065
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
SHP & Other
Solar
Wind
PPC Renewables (PPCR)-One of the fastest growing RES platforms in
the EU
PPC’s new management has put significant focus on the development of the company’s RES platform that will
be one of the major drivers in the efforts to reposition the company on a more sustainable and “green” path.
Many years of under-investment and luck of focus had resulted in PPC having just a 2.0% market share in the
Greek RES market with only 0.16GW installed. In this context management has set a near term target to develop
1.3GW of new capacity in Greece over the coming 24-36 months, targeting an installed capacity of 1.5GW by
end-2023. Upon execution the plan targets to deliver 114% CAGR organic growth in capacity and a 53% CAGR
in EBITDA for 2020-23, making PPC Renewables (PPCR-100% subsidiary of PPC) one of the fasted growing RES
platforms in the EU. Moreover management has hinted that is examining a number of JVs with other RES players
in order to further accelerate its expansion in the rector (the most mature is considered a 2.0GW JV with RWE
that could be finalized in the coming period). We also consider the additional synergies to be realized on a group
level including: i) increasing “green” foot print (RES to account for 17% of generation in 2023-24 vs. >1.5% in
2019); ii) reducing “net-long” position in electricity supply after lignite phase-out; and iii) improving earnings
quality and sustainability supporting also valuations.
This is the first time we include to our valuation and estimates the full business plan of PPC Renewables, as we
now feel confident about the resolve and capacity of the current management to deliver on the platform. In
this context the execution of the business plan will be supported by i) the utilization of PPC’s 6.0GW organic
project pipeline; ii) captive locations (depleted lignite fields) with existing grid infrastructure; and iii) restored
parentCo balance sheet to support the EUR 1.0bn 2020-23 capex bill. Also the positive Greek RES market
outlook is another major catalyst (Greek RES market expected to grow ~9.0% CAGR in 2020-30). We also
appreciate that the new capacity will be mostly in solar, given i) the significantly lower construction cost, time
and risks; and ii) the scarcity of good wind locations in the mainland as a late mover in the market.
Exhibit 22. PPC’s RES capacity roll-out (MW)
Source: The Company, AXIA Research
Pipeline analysis
Legacy capacity (0.16GW)
PPCR’s currently installed RES capacity comprises mainly by 90MW of wind parks and 70MW of small hydro
units generating in total 259GWh. The vast majority of the projects were developed pre-2010, with a significant
portion of the wind capacity already going under repowering and selling production directly to the merchant
market in order to remain fully operational for the medium to longer term.
In 2019 PPCR’s legacy capacity delivered an EBITDA of EUR 18.9m, while being practically unlevered (net debt
of EUR 7.6m). Going forward we assume a similar EBITDA run-rate for this capacity.
New Solar capacity (1.1GW by end-2023)
The company has already launched the construction works for 280MW in total of solar capacity (5 projects in
total) that will be developed in the depleted lignite fields of Northern Greece (230MW) and in Southern Greece
(50MW). The estimated capex for this capacity stands at EUR 180m (~EUR 0.65/MW). In terms of pricing
230MW have been successfully tendered in the competitive auctions, securing a 20-year PPA with a fixed tariff
Public Power Corporation – Company Update
AXIA Research Page 15
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
2019 2020E 2021F 2022F 2023F 2024F
Generation % of PPC generation
of ~EUR 49.0/MWh. For the remaining capacity (30MW) PPCR is targeting to sign a corporate PPA with the
supply division of PPC with arms-length structuring. Reportedly PPCR has reached agreement with Greek
commercial banks for project finance facilities for this portfolio. The projects should be gradually commissioned
by 1H2022.
Apart from the under construction PV projects, PPCR is planning for another 0.8GW of PV by utilizing the
approved licenses its holds in its portfolio that exceed 2.0GW for projects in the lignite mines. We note that the
development of those projects has also to be conscious of the lignite phase-out as some of the sites will be still
operational in 2021-23.
In respect of commissioning, similar to other projects in order to achieve the faster and seamless deployment
of capacity, PPCR is targeting to use corporate PPA’s with the supply division of the parentCo. For our modeling
assumptions we have assumed a fixed tariff of EUR 45/MWh for the corporate PPA, which is c10% lower vs. our
baseline merchant price assumptions. Assuming a development capex of EUR 0.6/MW, we estimate the projects
to yield unlevered returns of above 6.0%.
New wind capacity (0.2GW by end-2023)
PPCR has a captive portfolio of wind projects that should allow the deployment of 200-300MW within the
coming years. Out of this portfolio, 50MW are at various construction stages and should gradually come online
in 2021-22. Additionally PPCR has a 45% stake in 53.7MW of parks that are under construction through a JV
with Volterra. Those projects have secured regulated tariffs (FiP).
Additionally the company has 120MW of wind projects in Northern Greece (2 projects) that are ready to be
tendered in the upcoming capacity auctions.
Overall for the entire portfolio of new wind parks we assume a capex of EUR 1.05m/MW and a blended effective
tariff of EUR 50/MWh. This returns unlevered IRRs of 6.0% for the total projects portfolio.
Exhibit 23. PPCR generation (GWh) and % of PPC total generation
Source: AXIA Research, The Company
JVs as additional growth engine
Over the last 2-3 years PPC has signed MoUs for the joint development of RES projects with a number of energy
industry players like RWE (2.0GW), EDPR (400MW), Masdar Taaleri (300MW) and Motor Oil (100MW). Within
this context PPCR could seek to accelerate its expansion in the market by through an alternative path that would
offer additional capacity to handle the projects both in terms of development side but also financially.
Through those JVs PPC should be able to leverage i) its organic project pipeline and ii) it position as the largest
off-taker in the Greek market, making it one of the preferred partners for investors looking to enter the Greek
market rapidly and on a scale.
As the most mature of the announced JVs, the understanding is that agreement with RWE could be finalized
within the coming periods (summer 2021). The two entities would contribute to the JV greenfield licenses of
1.0GW each to be co-developed, with press suggesting that RWE could examine to add projects in South East
EU that it holds in its portfolio.
At this point we do not include in our estimates any assumption about JVs, awaiting for more details.
Growth potential beyond 2023
After completing a period of accelerated capacity deployment, PPCR would command a 15% market share in
the domestic RES market on our estimates. Considering the growth capacity of the domestic market (~9.0%
Public Power Corporation – Company Update
AXIA Research Page 16
CAGR for 2020-30 or additions of 800-900MW p.a.), we assume that PPCR should be able to continue growing
albeit at a pace that follows the market expansion. I this context our modeling exercise assumes PPCR to deploy
another 0.5GW during 2023-27, focusing on solar capacity (7% CAGR capacity growth for 2023-27).
We recon though that there is upside to our estimates if management opts to maintain an aggressive expansion
pace. Opportunities for additional capacity to come from the further utilization of licensed capacity for solar as
the bulk of lignite mines land will be available by then. Also PPCR has c4.0GW of wind projects in non-
interconnected islands that could be unlocked as islands interconnections projects are ongoing.
Funding the expansion
As discussed PPCR is the 100% subsidiary of PPC. The subsidiary as of 2019 had an unlevered balance sheet
(EUR 7.6m of net debt) and operating CF of EUR 17m.
We estimate that PPC’s growth plan will come with a capex of EUR 1.1bn in total to be deployed in 2020-23.
We have taken a cautious assumption for assumed leverage to stand at 60% compared to >70% on other RES
platforms, considerate of the extensive use of corporate PPA’s PPCR will need to sign in order deploy its capacity
(vs. regulatory off-take agreements at fixed tariffs). Based on this assumption we estimate that PPC will need
to invest ~EUR 400m of equity through its RES subsidiary in the coming years.
We estimate the equity portion of PPC’s investment will be adequately covered by operating CF generation in
the period (~EUR 4.0bn on our estimates) and payables reduction (i.e. proceeds of securitization transaction).
Additional to the above we note that PPC’s equity investment could be further supported by i) proceeds from
distribution grid sale; ii) proceeds from debt capital markets issues.
Based on our modeling assumptions and taking a conservative stance for the leverage of PPCR, we estimate
that it should be able to start dividend upstream after 2024.
Exhibit 24. PPCR key model assumptions and estimates
2019
2020E
2021F
2022F
2023F
2024F
Wind
87.4
87.4
115.4
187.4
267.4
297.4
Solar
1.3
1.3
81.3
381.3
1181.3
1281.3
SHP & Other
66.3
66.3
86.3
96.3
96.3
96.3
Total (MW)
155
155
283
665
1,545
1,675
Generation (GWh)
259
385
607
1,077
2,357
3,114
% of PPC total generation
1.0%
1.9%
3.0%
5.3%
10.8%
14.3%
Revenues
26.6
30.7
40.9
64.0
124.3
160.9
EBITDA
18.9
22.1
30.9
44.1
86.1
119.0
EBITDA margin
71.2%
72.1%
75.7%
69.0%
69.3%
74.0%
Dividend payout
0.0
0.0
0.0
0.0
0.0
-20.0
Operating CF
16.9
19.4
23.4
31.5
64.9
89.1
Debt amortization
0.0
0.0
-4.4
-19.3
-35.2
-49.8
Cash available to shareholder
0.0
0.0
19.0
12.2
29.7
39.3
Capex
-50.0
-15.0
-305.6
-350.0
-350.0
-200.0
New Equity *
0.0
0.0
200.0
200.0
50.0
0.0
Dividend payout
0.0
0.0
0.0
0.0
0.0
-20.0
Net Debt
7.6
3.2
85.5
203.9
439.0
569.9
Net Debt/EBITDA
0.4
0.1
2.8
4.6
5.1
4.8
Source: AXIA Research, *100% covered by PPC Parent Co.
Public Power Corporation – Company Update
AXIA Research Page 17
Valuation
We value PPCR using a DCF-based SOTP for each asset class. We run the assets for 25-years (30 years for small
hydro) assuming no further repowering or salvation value. In respect of capacity we assume that PPCR will reach
its 1.5GW target for installed capacity by the end of 2023 and then will grow to 2.0GW by end 2027 taking into
account in our calculations the required capex needs. In respect of WACC we assume 6.0%.
Our valuation is based on 2023 (year that capacity reached 1.5GW) and then we discount the equity value to
end-2021 using a 9.0% CoE.
Exhibit 25. PPCR Valuation exercise
EV (2023)
MW (2023)
EV/MW (x)
EV/EBITDA* (x)
Wind
316.7
267.4
1.2
12.9
Solar
896.5
1,181.3
0.8
12.0
SHP & Other
188.0
79.4
2.4
10.4
Total
1,401.2
1,528.1
0.9
11.9
Net Debt (2023)
436.0
Capex (2024-27)
408.0
Equity Value
555.6
Discount to 2021 (@9.0% CoE)
466.4
Per PPC share
2.0
Source: AXIA Research, *run-rate EBITDA for the underlying installed capacity
As a sanity check we also examine a peer comp list for EU RES names. Given PPCR’s growth pace and focus on
solar technology, we consider as closest peers high growth names in the space like Solaria, Neoen and Scatec.
Exhibit 26. EU RES peer valuation comps
Company
Country
Mcap
P/E (x)
EV/EBITDA (x)
(EUR m)
FY2020
FY2021
FY2022
FY2020
FY2021
FY2022
FY2023
EDP Renováveis, S.A.
Spain
19,321.6
39.7
44.6
40.5
15.3
15.2
14.3
13.7
Iberdrola, S.A.
Spain
69,601.3
20.6
19.1
17.6
11.3
10.5
9.7
9.2
Acciona, S.A.
Spain
6,708.4
29.7
21.3
17.9
10.8
9.5
8.6
8.0
Solaria Energía
Spain
2,596.5
117.4
82.1
41.2
58.4
33.5
20.1
14.9
Audax Renovables, S.A.
Spain
920.2
105.4
35.2
23.4
20.5
15.5
12.4
NA
Solarpack
Spain
675.0
43.8
38.8
28.6
17.0
14.4
10.8
7.7
Neoen S.A.
France
4,807.0
133.3
101.3
73.4
24.8
19.9
16.5
13.6
Voltalia SA
France
2,235.0
167.1
67.2
46.0
26.6
16.1
12.5
11.1
Albioma
France
1,292.2
25.3
22.7
20.4
11.3
10.5
10.0
8.3
Scatec ASA
UK
4,927.2
270.8
101.0
92.1
27.5
21.8
19.9
18.7
Falck Renewables S.p.A.
Italy
1,774.3
53.9
41.4
33.7
13.4
12.0
11.0
10.4
ERG S.p.A.
Italy
3,820.0
36.5
29.6
27.8
10.7
9.9
9.3
9.2
Energiekontor AG
Germany
749.0
39.0
29.3
23.6
14.9
12.3
10.1
NA
Terna Energy
Greece
1,598.8
20.7
22.4
19.4
11.6
11.3
11.2
8.9
EU median
41.8
37.0
28.2
15.1
13.4
11.1
9.8
Source: AXIA Research, Capital IQ
Public Power Corporation – Company Update
AXIA Research Page 18
25.0
35.0
45.0
55.0
65.0
75.0
85.0
Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec
2019 2020 2017 2018
Conventional generation – Legacy business getting leaner
PPC is by far the largest owner and operator of conventional generation assets in the country. Asset base
includes thermal units with merchant exposure (natural gas. lignite), regulated thermal (oil-fired in islands) and
run of the river and pump storage large hydro units. While the unit has been a strong earnings contributor for
the company in the previous decade (courtesy of free CO2 emission rights up to 2012-13), the sharp rise in
variable costs and the loss of market share due to new CCGT units of IPPs and RES growth had a massive impact
on the division’s profitability. At the same time fixed costs remained high. To deal with the issue management
has launched an accelerated de-lignitization campaign (3.4GW of existing capacity to shut down by 2023)
accompanied with right-sizing initiatives (headcount reduction/redirection of employees). Also reforms were
introduced to substantially improve sourcing and trading operations. Taking the above into account we
estimate that PPC’s thermal generation will gradually reduce its cash burn at EBITDA level (~breakeven at 2021)
driven by both gross profit improvement and fixed cost reduction. This accompanied with the traditionally high
cash-yielding hydro assets that are to be further benefited by the tightening of power markets and the regulated
oil-fired business should support the turnaround of the conventional generation division.
Exhibit 27a. Greek wholesale market price
(EUR/MWh)
Exhibit 27b. PPC Conventional generation production
(GWh)
Source: IPTO, AXIA Research
Natural gas fired generation (2.6GW)
PPC owns a fleet of 5 natural gas fired units with a total capacity of 2.6GW. The units were constructed at
various time periods, with the newest ones being Alivery V (2013) and Megalopoli (2016). While in the past
CCGT’s were mainly used a peakers, following the gradual reduction of lignite output, rising CO2 costs and drop
in fuel prices, the most efficient ones started developing baseload profile.
Exhibit 28. PPC’s natural gas units fleet
Commissioning
Capacity
Load factor
Unit
Year
MW
2018
2019
2020*
Komotini
2001
476
40.4%
30.3%
33.3%
Lavrio IV
1998
550
13.1%
19.8%
24.2%
Lavrio V
2006
378
7.4%
47.0%
39.9%
Aliveri V
2013
417
63.8%
50.2%
63.1%
Megalopoli V**
2016
811
35.6%
35.1%
47.9%
Source: IPTO, AXIA Research, *Jan-Nov period, ** Megalopoli unit has been running on a capped 511MW capacity due to grid restrictions in the period
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2011 2012 2013 2014 2015 2016 2017 2018 2019
PPC - Oil
PPC - Natural
gas
PPC - Hydro
PPC - Lignite
Public Power Corporation – Company Update
AXIA Research Page 19
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Nov
2018 2019 2020
TTF Greece Import
0%
10%
20%
30%
40%
50%
60%
70%
Jan
Jun
Nov
Apr
Sept
Feb
Jul
Dec
May
oct
Mar
Aug
Jan
Jun
Nov
Apr
Sept
Feb
Jul
Dec
May
Oct
2012 2013 2014 2015 2016 2017 2018 2019 2020
Gas Lignite
39 33 31
13
12 11
52
45 42
Old CCGT Relatively Old
CCGT
New CCGT
CO2
Fuel cost
401.9
345.8 326.5
265.6
409.1 383.6
431.4
2013 2014 2015 2016 2017 2018 2019
Exhibit 29a. PPC’s natural gas expenses (EUR m)
Exhibit 29b. PPC’s CCGT’s variable cost base 2020
(EUR/MWh)
Source: PPC, AXIA Research
In respect of the overall domestic CCGT market (5.0GW in total for PPC and IPPs), PPC’s fleet has been lower in
the merit curve vs. Protergia and Elpedison units, affected by the higher fuel costs and the dated fleet.
Exhibit 30. Greek CCGT’s key data (2017-19 averages)
Producer
MW
Load
Factor
Premium over
SMP (EUR/MWh)
Average fuel cost
(EUR/MWh)
EBITDA spread
(EUR/MWh)
Protergia*
1,200
48.0%
13.8
50.1
15.0
Elpedison
810
38.0%
14.5
53.4
8.5
PPC
2,632
36.0%
NA
58.1
NA
Heron II
422
37.1%
22.0
59.2
12.7
Source: Companies financial statements, IPTO, AXIA Research, *inc. AoG CHP unit
PPC for a long period had a supply contract for the bulk of its needs for pipeline gas priced based on crude prices
with the State-owned natural gas supply company, DEPA. Some additional volumes were secured through a
lengthy international tender process, while there was no access to LNG. Since 2019, procurement processes
have changed, allowing PPC to move also on the spot LNG market, something that was utilized in 2020 with PPC
getting 4 shipments. Also in 2020 the company has secured a new agreement with DEPA for the supply of
pipeline gas at a very attractive pricing with the formula including reference to EU gas hubs (TTF).
Exhibit 31a. Natural gas prices (EUR/MWh-th)
Exhibit 32b. Natural gas vs. lignite in energy mix
Source: Capital IQ, RAE, IPTO, AXIA Research
Going forward we assume tightening market conditions due to the lignite decommissioning to allow PPC’s fleet
to run at healthy utilization rates and price capture, yet only 1-2 units could be competitive enough to run as
baseload (especially if we take into account the 2-3 new CCGT units with (1.6-2.4GW) that are being promoted
by IPPs. On the other hand the improved flexibility in sourcing should support clean spark spreads.
Public Power Corporation – Company Update
AXIA Research Page 20
Exhibit 33. PPC’s CCGT fleet key model assumptions and estimates
2020E
2021F
2022F
2023F
2024F
Capacity (MW)
2,632
2,632
2,632
2,632
2,632
Loaf factors
32.4%
27.6%
28.1%
29.0%
29.0%
Production (GWh)
7,476
6,355
6,482
6,676
6,676
SMP (EUR/MWh)
45.0
52.0
53.0
54.0
53.0
Nat. gas (EUR/MWh-th)*
13.5
18.5
17
17
17.2
Unit figures (EUR/MWh)
Revenues
56.0
67.6
63.6
64.8
66.3
Variable costs
45.5
56.9
54.2
54.2
55.5
Gross profit (CSS)
10.5
10.7
9.4
10.6
10.8
Fixed costs
4.0
3.5
3.0
3.0
3.0
EBITDA
6.5
7.2
6.4
7.6
7.8
Key CCGT fleet PnL (EUR m)
Revenues
418.7
429.6
412.2
432.6
442.3
Variable Cost
340.2
361.4
351.6
362.1
370.3
Gross Profit
78.5
68.1
60.7
70.5
72.0
Fixed costs
29.9
22.2
19.4
20.0
20.0
EBITDA
48.6
45.9
41.2
50.5
51.9
Source: AXIA Research, *realized price ex-grid costs
Hydro (3.17GW, of which 1.1GW of pump-storage)
PPC is the sole owner and operator of large run-of-the–river hydro units in the country. On average over the
last 5 years hydro output amounted to 4.2TWh, accounting for ~14% of PPC’s generation and ~9.0% of total
demand in the country.
Exhibit 34. PPC’s hydro units output (GWh)
Source: IPTO, AXIA Research
Based on our view for tighter power market in the coming years, and the increasing need for balancing tools to
stabilize the increased renewables penetration, we expect solid profitability to continue from these assets.
Exhibit 35. PPC’s hydro fleet key model assumptions and estimates
2020E
2021F
2022F
2023F
2024F
Capacity (MW)
3,171
3,171
3,171
3,171
3,171
Production (GWh)
3,027
4,237
4,386
4,386
4,386
Per unit figures (EUR/MWh)
Revenues
49.5
57.2
58.3
59.4
58.3
Variable Cost
3.0
3.0
3.0
3.1
3.1
Gross profit
46.5
54.2
55.2
56.3
55.1
Fixed Costs
17.0
12.0
12.2
12.4
12.5
EBITDA
29.5
42
43
44
43
Key PnL items
Revenues
150
242
256
261
256
Variable Cost
9
13
13
14
14
Gross profit
141
230
242
247
242
Fixed Costs
51
51
53
54
55
EBITDA
89
179
189
193
187
Source: AXIA Research
3,676 3,892
5,640
3,906
5,391
4,843
3,456
5,051
3,363
4,358
2011 2012 2013 2014 2015 2016 2017 2018 2019 2011-19
average
Public Power Corporation – Company Update
AXIA Research Page 21
Oil fired production in non-interconnected islands (1.7GW)
PPC is the sole provider of thermal energy production in non-interconnected islands of Greece. Total electricity
consumption of non-interconnected islands amounts to ~5.5TWh p.a. (c10% of total domestic consumption).
The thermal production is solely based on oil-fired units and account for about ~4.5TWh. Crete island (the
largest in Greece) accounts for ~50% of the total consumption followed by Rhodes (~19% of consumption).
Given the significantly higher cost of oil-fired production vs. other conventional sources, the activity is fully
regulated (similar framework to grid operators) in order to ensure level electricity costs for inhabitants of the
islands vs. mainland. This is facilitated through the Public Service Obligations (PSO) charges paid by all
consumers that is used to compensate for the additional generation costs occurred.
Based on the latest publicly available regulatory decision (concerning 2017) the RAB for this activity stood at
EUR 835m and the regulatory approved WACC stood at 7.0%. The understanding (regulatory decision pending
to be published) is that for 2018-20, WACC has been unchanged at 7.0% (same with distribution activity).
For PPC in 2019, the activity generated an EBITDA of EUR 107m.
Going forward, Greece’s has launched an extensive investment program to connect by the end of the decade
almost all of its islands to the mainland electricity system (TSO operator, IPTO, has announced EUR 5.0bn
investment plan for 2020-30) ensuring their security of supply, unlocking significant RES capacity and also
lowering electricity costs for consumers. Main projects include the full interconnection of Crete by 2024 and
Rhodes by 2028-30. In this context we expect in the coming years the thermal production activity to decline
significantly, triggering as we understand a reduction in RAB. Still, some units in the islands are expected to be
mothballed to ensure security of supply. PPC has said that will be looking to secure some revenue streams for
the mothballed capacity, while it could also look for some compensation for the undepreciated cost of the units
that will be permanently shut down.
Taking the above into account our model we account for a gradual decline in RAB in the coming years, with the
decline becoming stepper after Crete interconnection in 2024. In respect of WACC we assume an average
achieved return of 6.7% (similar to distribution activity) for the 2021-24 period.
Exhibit 36. Oil fired generation key financials
EUR m
2019A
2020E
2021F
2022F
2023F
2024F
RAB
630.5
503.2
463.2
423.2
383.2
355.0
Regulated return
7.0%
6.7%
6.7%
6.4%
6.2%
6.3%
EBITDA
107.6
93.6
91.3
87.1
83.9
58.8
Source: AXIA Research
Lignite (3.36GW)
PPC is executing one of the fastest de-lignitization projects in the EU, aiming to shut down 3.4GW of assets by
2023 and the final 0.6GW to be shut down by 2028, in line with the country’s National Energy and Climate plan.
With lignite activity being heavily loss making over the last couple of years, the gradual reduction of its footprint
is one of the main drivers of the improvement in the earnings quality of PPC by increasing gross profit and right-
sizing fixed cost base (~4,000 employees or ~30% of PPC’s current manpower is utilized by lignite production
and mines).
We note that the company has at the last construction stage a new lignite unit (610MW Ptolemaida V). The
investment had a cost of EUR 1.4bn and was launched back in 2013. The project has been financed by corporate
debt (50%) and a project specific finance facility by KFW.
In the context of de-lignification, management has suggested that the unit will remain operational using lignite
until 2028. Based on its specs the unit is expected to be able to deliver positive gross margin even with CO2
prices at EUR 45-50/MWh. Thereafter it will be converted to operate with alternative fuel with the latest
guidance suggesting its conversion to a hydrogen-ready natural gas unit. No details about conversion costs have
been disclosed at this point.
We note that according to recent headlines Ministry of Energy has reached an agreement with EU Authorities
for the long-lasting dispute on PPC’s exclusive access to lignite (dates back to 2007). The envisaged framework
Public Power Corporation – Company Update
AXIA Research Page 22
proposes that PPC will sell part of its lignite output through bilateral agreements to third party suppliers. In
more detail for 2021, PPC will have to sell 50% of 2020 output and for 2022-23 40% of previous year output.
Pricing will be related to the SMP (we assume a 10% discount), securing a fair compensation for PPC’s variable
cost base (compared to regulatory set pricing). On our estimates PPC will have to sell in total ~7.0TWh for 2021-
23. Assuming a ~EUR 5.0/MWh discount to SMP, we estimate a total impact of EUR 35m for 2021-23.
Source: AXIA Research
Exhibit 38. PPC’s generation division EBITDA estimates
Source: AXIA Research
93.6 91.3 87.1 83.9 58.8
48.6 45.9 41.2 50.5 51.9
89.3 178.8 188.9 192.7 186.9
-408.9 -315.4
-193.1 -104.5 -78.6
2020 2021 2022 2023 2024
Lignite
Hydro
Naural gas
Oil
Exhibit 37. Lignite fleet key model assumptions and estimates
2020E
2021F
2022F
2023F
2024F
Capacity (MW)
3,360
2,810
2,000
1,510
610
Production (GWh)
5,841
4,913
4,977
5,224
4,625
…o/w sold through bilateral contract
0
2,921
1,965
1,991
0
CO2 Prices
25.0
33.0
34.0
34.0
36.0
Per unit figures (EUR/MWh)
Revenues
47.0
52.0
53.0
54.0
53.0
Variable Cost
47.0
42.0
35.0
31.0
25.0
Gross profit
-40
-36.2
-22.8
-11
-8
Fixed Costs
-30.0
-28.0
-16.0
-9.0
-9.0
EBITDA
-70
-64.2
-38.8
-20
-17
Key PnL items (EUR m)
Revenues
275
256
264
282
245
Variable Cost
508
433
377
340
282
Gross profit
-234
-178
-113
-57
-37
Fixed Costs
175
138
80
47
42
EBITDA
-409
-315
-193
-104
-79
Public Power Corporation – Company Update
AXIA Research Page 23
76.7 79.6 73.7 72.3 68.7 38.8 64.6 99 108 80 36.3
81.1 94.5 66.9 54.8 40.1
39.1
83.2 51.5 28.6 76
45.7
-50
0
50
100
150
200
250
300
350
DE PT FR AT ES IT BE PL GR NL HU
VAT
Taxes-fees
Transmission-Distribution
Energy
PPC, 64%
Mytilineos,
9%
Heron, 7%
Elpedison,
5%
Watt and
Volt, 3%
NRG, 3% Others, 9%
-50.0%
-45.0%
-40.0%
-35.0%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7
After adjustmet clause Base
Retail supply-The major contributor of 2020 turnaround
Despite the reduction of its market share over the last years, PPC remains by far the largest player in the
electricity supply market with 6.1m customers and a ~65% market share. With the supply market in Greece
being fully liberalized, management’s strategy regarding tariffs is the main profitability driver for the division.
We recon the social impact of electricity tariff adjustments (along with State ownership) has been weighting on
the company’s capacity to adjust its tariffs. In this context the successfully implemented increase in tariffs in
September 2019 (the first one implemented since 2013) have been one of the key driver for PPC’s growth in
2020E. This strategy was further augmented by the energy prices tailwinds in 2020 to drive the division’s gross
profit up by ~19x in 2020 on our estimates. Currently PPC’s pricing is about 20-30% higher vs. competition.
Exhibit 39a. Greek electricity retail market shares
(Sep’20)
Exhibit 39b. Alternative suppliers discount vs.
PPC’s base rate (4Q20)*
Source: The Company, AXIA Research,*adjustment clause assuming SMP @ EUR 50/MWh
With the Greek electricity supply market traditionally registering lower switching rates vs the EU, we believe
that PPC’s management should be in a position to controllably reduce its market share over the next 2-3 years
to reach closer to 50% by 2023, while capturing hefty margins. The lower supply market share will significantly
de-risk the company reducing its net-long exposure (considering also the decline of its generation output) and
will weaken any arguments regarding dominant market position.
Also the significant footprint in number of contracted customers (~4.4m customers by 2023E), make PPC’s
supply division one of the largest captive channels in the overall domestic retail market that could be further
exploited to generate/complement new revenue streams.
Still we recon the fact that PPC maintains a net long exposure on the supply side (~35% on average for 2020-
23) along with track record of limited flexibility on tariff adjustments, to be a risk factor for the company.
Exhibit 40. Household electricity prices in selected EU countries Dec’20 (EUR/MWh)
Source: EU Commission, AXIA Research
Public Power Corporation – Company Update
AXIA Research Page 24
0.5
2.7
3.1
0.9
5.1
4.9
8
4.6
8.9
9.7
11.7
10.1
14
24.7
13.7
12.8
15.9
2.4
2.5
4.2
4.5
5.1
7.1
9.1
9.8
10.2
10.4
11.1
11.3
14.2
15.9
19.0
19.1
21.4
RO
HR
AT
GR
DK
CZ
IT
FR
DE
ES
FO
SE
IE
PT
BE
GB
NO
2018 2013-17
Swiching rates estimated at 10% for 2020 in Greece
98.3% 97.9% 96.4% 91.9% 86.7% 81.8% 75.8%
65.6% 59.9% 54.9% 52.4% 52.3%
2013 2014 2015 2016 2017 2018 2019 2020E 2021F 2022F 2023F 2024F
Market opening up to continue albeit at a slow pace
Currently ~35 companies are active in the electricity retail market in Greece that has been fully liberalized since
2007. Given the structural inefficiencies of the market, customer mobility has been rather limited, with Greece
registering one of the lower switching rates in the EU. The structural measures implemented in the market have
gradually started to open up competition for alternative suppliers. Based on the current market structure
outlook is for the competition to continue gaining market share from the largest player PPC. This is also
facilitated by the company’s strategy to willingly lose market share in order to reduce its net long exposure in
the volatile supply side of the business.
Exhibit 41. PPC’s supply division market share
Source: The Company, AXIA Research
We reckon that this will be a rather long process, with PPC edging closer to 50% by 2023 (this compared to
previous EU expectation to achieve 50% by 2020). As main hurdles in this process we note: i) the fact that most
of alternative producers are not vertically integrated and thus carry significant merchant risks; ii) Target model
market structure started only a couple of months ago, with significant volatility given its infancy phase not
allowing full utilization by alternative suppliers.
Exhibit 42. External switching rates for electricity household consumers by metering points (%) for 2018
and 2013-17 average
Source: CEER, AXIA Research
PPC’s tariff setting considerations
One of the first tasks of the new management of the company back in September 2019 was to implement a
tariff hike for the retail part of the supply portfolio, with the increase in the commercial part of the energy bill
standing at 24%. This move was dictated by the extremely tight financial condition of the company at the time
that urged for measures to swiftly increase profitability. The counteractive move by the Ministry of Energy to
reduce the regulatory burdens on the electricity bill kept realized prices by end consumers unchanged.
Public Power Corporation – Company Update
AXIA Research Page 25
98.1 97.9
95.9
87.5 87.5 87.1
94.2
103.0 103.0 102.0 100.5 99.0
2013 2014 2015 2016 2017 2018 2019 2020E 2021F 2022F 2023F 2024F
We note that the previous tariff adjustment action taken by the company was the offering of a 15% discount to
its customers for on-time bill payments following the aftermath of the severe arrears escalation in 2015. This
has been reduced to 5.0% in 2019.
Exhibit 43. PPC’s realized commercial tariff (EUR/MWh)
Source: The Company, AXIA Research
The tariff hikes on 2019 along with tailwinds on the energy procurement costs in 2020, significantly boosted
the profitability margins of PPC’s supply division, but increased the spread vs. competitor’s offerings. Currently
PPC’s management is focusing on the general revamp of the supply business, targeting to improve significantly
client facing operations, digitalize the business, boost cash conversion and meet new needs. In this context
since mid-2020 a number of new electricity supply contracts have been marketed by PPC, offering additional
features.
On our estimates for 2020-25 we assume a reduction of realized commercial tariff by PPC of about 7.3% in total
(1.5% CAGR) driven by i) promotion of market offerings ; and ii) erosion of customer mix quality i.e. migration
of commercial and retail customers.
Cost base
Considering the energy procurement side, we note that the launch of target model operations should allow the
company to somehow reduce the volatility induced by wholesale prices through active hedging. Also the launch
in the Greek market as of late 2020 for the first time of corporate PPAs with RES producers (and PPC’s RES
subsidiary) should allow the company to more efficiently manage gross margin.
Another important cost element for the divisions is provisions for unpaid bills, something that had a material
negative effect in 2013-16 (EUR 2.0bn of provisions booked in total during the period). Since then PPC has
gradually enhanced its actions to deal with collections including the appointment of specialized advisors. This
has been visible in the very high cash collection rates observed during the last quarters and even during periods
of mobility restrictions (lockdowns).
15% discount offered for on-
time account payments
Public Power Corporation – Company Update
AXIA Research Page 26
Exhibit 44. PPC’s supply division key KPIs
EUR / MWh
2018
2019
2020E
2021F
2022F
2023F
2024F
2025F
Average revenue from Energy sales
105.4
112.7
121.5
121.5
120.5
119.0
117.5
114.0
Grid related revenues-Regulated/pass through
18.3
18.5
18.5
18.5
18.5
18.5
18.5
18.5
Commercial tariff
87.1
94.2
103.0
103.0
102.0
100.5
99.0
95.5
Energy purchases cost (inc. losses)
89.0
93.0
76.5
85.3
83.0
84.0
83.0
82.0
SMP
60.3
63.9
45.0
52.0
53.0
54.0
53.0
52.0
Mark-up (losses-clearing etc.)
28.6
29.2
31.5
33.3
30
30
30
30
Gross margin
-1.9
1.2
26.5
17.7
19.0
16.5
16.0
13.5
Cost to serve
3.1
2.6
4.3
3.6
3.7
3.5
3.3
3.0
adj. EBITDA
2.6
2.7
19.7
14.1
15.3
13.0
12.0
9.8
Tariff y-o-y
-0.5%
8.2%
9.3%
0.0%
-1.0%
-1.5%
-1.5%
-3.5%
Commercial gross margin (%)
-2.2%
1.3%
25.7%
17.2%
18.6%
16.4%
16.2%
14.1%
adj.EBITDA per customer (EUR)
15.4
16.4
117.9
86.9
97.1
84.7
79.8
65.9
Source: AXIA Research, The Company
Profitability outlook
Overall we do not expect the very high gross margin achieved in 2020 to be sustainable. This will be driven by:
i) higher energy procurement costs (especially for 2021 following the infancy issues with the launch of target
model market charges); and ii) lower realized commercial tariffs as discussed previously.
In this context our profitability estimates for 2023 are lower vs. management guidance provided during business
plan presentation (guidance of EBITDA margin of 11% or EUR 98 per customer per year). We note that on more
advanced Western EU electricity markets the figures reported by the industry are for EBITDA margin of 6-7% or
EUR 60-70 per customer.
Specifically following a sharp rise in EBITDA in 2020E to EUR 638m, courtesy of the implemented tariff increases,
our EBITDA subsides by 42% until 2023 (to stand at EUR 387m) and by 56% by 2025 (to EUR 288m).
Still we note that that given the structural inefficiencies of the Greek market, profitability metrics for the retail
business could remain above Wester EU (or at the higher end), allowing PPC to “enjoy” its market share erosion
process. Additional ventures by PPC’s management to exploit its retail footprint (duel/triple play offerings,
energy efficiency services, e-mobility etc.) would also support earnings per customer.
Public Power Corporation – Company Update
AXIA Research Page 27
-1.3
-371.9
44.5
349.9 292.2
105.7 104.1
638.2
437.5 447.8 373.1 350.6
2013 2014 2015 2016 2017 2018 2019 2020E 2021F 2022F 2023F 2024F
Exhibit 45. PPC’s supply division model assumptions and estimates
EUR m
2016
2017
2018
2019
2020E
2021F
2022F
2023F
2024F
2025F
PPC Sales volumes (GWh)
46,307
43,821
40,831
38,410
32,384
30,930
29,359
28,672
29,102
29,539
GR market share
91.9%
86.7%
81.8%
75.8%
64.4%
59.9%
54.9%
52.4%
52.3%
52.2%
Num of customers (m)
7.7
7.3
6.9
6.4
5.4
5.0
4.6
4.4
4.4
4.4
Income per customer (EUR)
524.7
526.9
517.2
568.5
616.4
633.2
649.1
654.5
656.0
643.8
Gross profit per customer (EUR)
113.2
-9.6
-11.2
7.2
158.6
108.8
120.9
107.5
106.0
91.0
Cost to serve per customer (EUR)
12.8
15.7
18.2
15.8
25.9
21.9
23.8
22.7
21.6
20.5
EBITDA per customer (EUR)
45.3
40.1
15.4
16.4
117.9
86.9
97.1
84.7
79.8
65.9
Total supply revenues
6,368.5
6,149.0
5,582.0
5,403.2
4,841.5
4,624.0
4,359.8
4,214.8
4,234.4
4,194.5
(-) Pass-through revenues
1,471.8
1,483.1
1,277.5
1,075.2
906.8
866.0
822.1
802.8
814.9
827.1
Reported revenues from energy sales
4,896.7
4,665.9
4,304.5
4,328.0
3,934.7
3,758.0
3,537.8
3,412.0
3,419.5
3,367.4
(-) Regulated revenues
846.0
829.4
749.1
709.7
599.1
572.2
543.1
530.4
538.4
546.5
Commercial revenues
4,050.7
3,836.5
3,555.4
3,618.3
3,335.6
3,185.8
2,994.6
2,881.5
2,881.1
2,820.9
(-) Energy purchases
3,176.5
3,906.6
3,632.5
3,572.2
2,477.4
2,638.3
2,436.8
2,408.5
2,415.5
2,422.2
Gross margin
874.2
-70.1
-77.1
46.1
858.2
547.5
557.8
473.1
465.6
398.8
(-) Cost to serve
98.6
114.1
125.0
100.4
140.0
110.0
110.0
100.0
95.0
90.0
EBITDA (pre-provision)
775.6
-184.2
-202.1
-54.3
718.2
437.5
447.8
373.1
370.6
308.8
Provisions
355.3
28.5
-75.6
-33.3
80.0
0.0
0.0
0.0
20.0
20.0
Other
-70.4
504.9
232.2
125.1
adj.EBITDA
349.9
292.2
105.7
104.1
638.2
437.5
447.8
373.1
350.6
288.8
margin
5.5%
4.8%
1.9%
1.9%
13.2%
9.5%
10.3%
8.9%
8.3%
6.9%
Source: The Company, AXIA Research
Exhibit 46. PPC’s supply division adj.EBITDA (EUR m)
Source: The Company, AXIA Research
Public Power Corporation – Company Update
AXIA Research Page 28
52.6
48.00
43.8
31.4
35.4
30
18
2013 2014 2015 2016 2017 2018 2019
1.10 1.11
1.01 0.94 0.97 0.95 0.90
2013 2014 2015 2016 2017 2018 2019
ESG Considerations – Can PPC get greener?
For a very long period PPC has been screening as one of the largest lignite producers in the EU and was one of
the utilities with the highest CO2 intensity in the industry. Along with limited exposure on the RES space, PPC
has been traditionally excluded from the screening tests of the increasing ESG-considerate investor audience.
With new management executing one of the fastest de-lignitization process in the EU utilities space and heavily
investing in RES sector, we argue that PPC could start to re-profile as an increasingly green Co. One of the first
tipping points for this process is 2020, the year that PPC’s lignite generation will for the first time in its history
drop below the 30% threshold (compared to total generation).This is one of the most commonly used screening
test KPIs for coal exclusion lists currently used by investors like Allianz, AXA, Amundi, Blackrock, Norges and JP
Morgan.
Looking further ahead, we reckon that towards the end of the decade, PPC could be at a very close distance to
reach net zero carbon status for its generation, a timeframe that is widely appreciated by the ESG crowds.
Exhibit 47a. PPC’s lignite production (mil. MT)
Exhibit 47a. PPC’s CO2 intensity (MT/MWh)
Source: The Company, AXIA Research
Exclusions criteria
The most common issue of coal exposed stocks is to be excluded from scratch from the investable universe of
various funds. This is driven by rising environmental awareness driving into the financial industry with the
consensus being the need to phase out fossil fuel in order to achieve Paris Agreement targets. In this context
fund managers, draft specific KPIs and thresholds that portfolio companies need to abide.
Another side-effect of the theme is the increasing cost of capital for fossil fuel related investments, with a
number of IFIs and commercial banks having already announced policy to withdraw from further investments
in the sector.
One of the most detailed, strict and widely accepted coal exclusion lists has been drafted since 2016, by the
German non-profit organization “Urgewald” that issues its annual Global Coal Exit List. The organization sets 3
types of criteria when examining coal-exposed names: absolute, relative and forward looking.
According to the policy, companies that meet at least one of the criteria are included in the Coal Exit List.
Exhibit 48. Global Coal Exit List criteria 2020
2019 List
2020 List
Relative
Coal share of revenues*
Coal share of power production
30%
30%
20%
20%
Absolute
Annual thermal coal production
Coal generation capacity
20mMT
10GW
10mMT
5.0GW
Expansion
New coal mines
New coal power Plants
New coal related infrastructure
NA
NA
Source: Coalexit.org, AXIA Research. *if coal revenues figures are not available calculation are based on installed capacity
Public Power Corporation – Company Update
AXIA Research Page 29
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020E
2021F
2022F
2023F
2024F
2025F
2026F
2027F
2028F
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2013
2014
2015
2016
2017
2018
2019
2020E
2021F
2022F
2023F
2024F
2025F
2026F
2027F
2028F
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F
Fossil RES+Hydro
Exhibit 49. Application of Coal Exclusion criteria on PPC in 2023 vs. 2019
Criteria
Thresholds
PPC 2019
PPC 2024E
Relative
Coal share of revenues
>20%
<20%
Coal share of power generation
40.5%
20%
Absolute
Annual thermal coal production
17.8mMT
~4.5mMT
Coal fired capacity
3.6GW
0.6GW
New coal mines
NO
NO
Forward
New coal fired plants
YES
NO
New coal infrastructure
YES
NO
Source: AXIA Research
Exhibit 50a. Lignite share of PPC’s power
production (% of total)
Exhibit 50b. CO2 intensity of PPC’s power
production (mMT/GWh)
Source: AXIA Research
We reckon that despite management’s strict commitment to eliminate lignite from the generation portfolio,
natural gas production in mainland and oil fired generation to the remaining non-interconnected islands will
maintain a big chunk of PPC’s generation for the coming decade per our base case.
We believe though that under a bull case scenario for the company’s expansion plan in the RES sector, PPC
could achieve net zero carbon production by the end of 2030. Such a scenario would entail the development of
additional 1.0GW of installed capacity to reach the total size of 3.0GW vs. our base case for a terminal installed
capacity of 2.0GW by 2027 (vs. 0.16MW in 2020).
Exhibit 51. PPC’s generation by fuel type (base case)
Source: AXIA Research, The Company
Public Power Corporation – Company Update
AXIA Research Page 30
Exhibit 52. Generation mix profile PPC vs. EU Utilities (% RES + Hydro in total capacity)
Source: The Companies, AXIA Research
51.8%
73.5%
21.3%
28.7%
34.8%
25.5%
61.0%
18.6%
17.0%
25.0%
30.1%
31.1%
48.8%
Enel EDP CEZ RWE Endesa EDF Iberdrola Uniper Fortum PPC-2012 PPC-2019 PPC-2020 PPC-2024
Sector average (ex-PPC)
36%
Public Power Corporation – Company Update
AXIA Research Page 31
PnL trends – Focus on earnings quality
With PPC set to growth by 3.0x its recurring EBITDA for 2020, our focus turns on the underlying earnings quality
and sustainability going forward. Our deep dive analysis suggests that operating profitability in 2020 has been
partially supported by tailwinds mainly related to lower energy costs that boosted the company’s gross profit.
This has been also reflected by the management’s upgraded guidance during 1H20 results call in September.
While we argue that some of the tailwinds should subside in 2021, we believe that management’s restructuring
efforts will gradually kick in, mitigating any commodity related headwinds. As such, continued investments in
divisions with high cash flow visibility (distribution, RES) and strategic initiatives (lignite phase out, cost
optimization) further de-risk the business model of PPC.
Exhibit 53. PPC’s profitability drivers (AXIA estimates)
EUR m
2020E
2021F
2022F
2023F
2024F
Conventional Generation
193.7
313.8
375.4
432.0
410.1
Supply
863.2
552.5
560.8
475.1
470.6
Distribution
426.5
430.7
457.6
488.8
518.5
RES
27.6
36.8
57.6
111.8
144.8
Gross Profit
1,510.9
1,333.8
1,451.4
1,507.7
1,544.0
Conventional Generation
376.0
318.3
256.3
214.4
196.0
Supply
220.0
110.0
110.0
100.0
115.0
Distribution*
0.0
0.0
0.0
0.0
0.0
RES
5.1
6.0
11.9
22.9
25.1
Fixed Costs
601.2
434.3
378.2
337.3
336.2
Group Recurring EBITDA
909.7
900.0
1,073.2
1,170.5
1,207.8
Oil
94
91
87
84
59
Hydro
89
179
189
193
187
Natural Gas
49
46
41
50
52
Lignite
(409)
(315)
(193)
(104)
(79)
Conventional generation total
(177)
1
124
223
219
Renewables
22
31
44
86
119
Distribution
426
431
458
489
518
Retail Supply
638
437
448
373
351
Source: AXIA Research,*given regulated business line we book EBITDA at gross profit level
On a summary our main drivers for the gross profit performance are focused on i) lignite phase out benefiting
gross profit of conventional generation; ii) retail supply margin erosion due to lower effective tariff assumptions
and higher wholesale market costs; iii) investments expensing the asset base for distribution and RES. In respect
of fixed costs items, the main driver is again the gradual reduction of lignite footprint and associated rightsizing
of supportive operations.
Compared to our previous set of estimates we have kept unchanged our 2020E recurring EBITDA, while EPS
adjustment is related to higher effective tax rate. For 2021 we expect recurring EBITDA to stand at EUR 900m
(in-line with guidance) revising lower our previous earnings estimates taking stock of the volatility in the local
power wholesale markets over the last couple of months (courtesy of newly launched energy exchange) and
the recently announced agreement regarding the lignite anti-trust case.
For 2022 we model for a y-o-y uplift in EBITDA coming from the streamlining of operations and the ramp up of
profitability in RES and grid. Further ahead, the heavy investments of the company in RES and the distribution
grid are expected to accelerate underlying profitability, while the ongoing streamlining efforts (both OPEX and
capital costs) across the organization push profitability higher. To this end, for 2023-24 our recurring EBITDA
and EPS estimates are revised higher by ~5.0% and ~22.0% respectively.
Public Power Corporation – Company Update
AXIA Research Page 32
0.1 0.2
0.07
0.1
0.49
0.5
0.5 0.4
Guidance AXIA
Supply
Distribution
RES
Conventional
Generation
Exhibit 54. PPC’s New vs. Old estimates
EUR m
2019
2020E
2021F
2022F
2023F
2024F
EBITDA-Recurring
New
333.6
909.4
900.0
1,073.6
1,170.6
1,207.1
Old
897.3
1,035.4
1,128.7
1,122.5
1,145.6
New-vs-Old
1.3%
-13.1%
-4.9%
4.3%
5.4%
adj. Net Income
New
(2,057.6)
28.5
50.4
197.9
281.3
266.5
Old
46.1
140.3
212.3
224.4
224.4
New-vs-Old
-38.2%
-64.1%
-6.8%
25.4%
18.8%
Source: AXIA Research
Exhibit 55. AXIA’s main estimates vs. guidance and consensus
EUR m
2020E
2021E
2022E
2023E
Recurring EBITDA
AXIA
909
900
1,074
1,171
Guidance (EUR bn)
0.9
0.9
NA
1.1
Consensus
994
960
1011
1086
Net Debt/EBITDA (x)
AXIA
3.9
3.9
3.3
3.1
Guidance
3.7
3.7
NA
3.5
Consensus
3.5
3.6
3.5
3.2
Net Income
AXIA
28
50
198
281
Consensus
45
107
149
209
Source: AXIA Research, The Company, Capital IQ
Exhibit 56a. AXIA vs. guidance 2023 (EUR bn)
Exhibit 52b. Comments AXIA vs. guidance
We assume lower margins in retail supply business for 2023
(8.9% vs. guidance of 11%) considering sales mix erosion and
ongoing marketing efforts
We are in sync with management guidance on the regulated
distribution activity
On RES, we are broadly in line with guidance in terms of
installed capacity. Timing of installations might impact fine-
tuning
We are above guidance for conventional generation. This is
driven by our assumptions for higher profitability of the hydro
units, but also for reduced fixed costs on the lignite business
We assume a 20% newt reduction of employee headcount in
total for 2020-23 as per management guidance (~3 k
Employees). We also account for associated VRS costs during
the period
Source: AXIA Research, The Company
Exhibit 57. PPC’s consolidated PnL
EUR m
2019
2020E
2021F
2022F
2023F
2024F
Total Revenues
4,931.6
4,638.7
4,445.7
4,293.2
4,232.3
4,241.1
Energy sales
4,288.7
3,908.7
3,615.7
3,413.2
3,342.3
3,391.1
Other revenues
643.0
730.0
830.0
880.0
890.0
850.0
Natural gas
431.4
272.9
286.0
272.2
280.4
283.8
Fuel Oil
670.9
466.3
447.6
464.2
442.8
404.5
CO2
546.5
365.3
393.4
366.7
335.2
329.3
Energy Purchases
1,486.4
1,294.0
1,245.7
1,090.1
983.9
976.2
Payroll
755.7
700.7
622.9
551.1
489.3
496.6
Other
707.2
630.3
550.6
475.2
530.1
543.6
Recurring OPEX
4,598.0
3,729.4
3,546.1
3,219.6
3,061.7
3,034.0
Recurring EBITDA
333.6
909.4
899.6
1,073.6
1,170.6
1,207.1
margin
6.8%
19.6%
20.2%
25.0%
27.7%
28.5%
One-offs and VRS cost
465.3
-58.2
-55.0
-55.0
-55.0
0.0
Reported EBITDA
798.9
851.2
844.6
1,018.6
1,115.6
1,207.1
Source: AXIA Research, *one offs for 2020 include a fee of cEUR 62m related to the RES account liquidity measures and VRS costs (continue in 2022-23).
Public Power Corporation – Company Update
AXIA Research Page 33
9.1 x
11.1 x
3.7 x 3.9 x 3.9 x 3.3 x
2018 2019 LTM 9M20 2020E 2021F 2022F
5.1 x
3.4 x
7.0 x 6.6 x 6.9 x
9.4 x
2018 2019 LTM 9M20 2020E 2021F 2022F
Leverage - Operating cash flow generation allows balance sheet de-
risking and facilitates growth needs and dividend
The strong recovery of operating profitability in 2020 has materially improved PPC’s leverage metrics with net
debt/EBITDA coming down from 11.0x in 2019 to 3.6x in 2020E. This has also allowed management to proceed
with a significant de-risking of the balance sheet, reducing liabilities accounts for suppliers and third parties.
Moreover PPC in 2H20 executed an arrears securitization transaction for the bulk of its retail overdue, getting
EUR 500m in total (EUR 150m received and another EUR 350m pending to be received in 1Q21) from a totally
depleted asset (arrears were fully provisioned). This has put PPC in a position to be now able to negotiate and
further improve its funding mix and costs, especially considering the high capex needs of the coming periods.
This improvement has also been noticed by rating agencies, with S&P upgrading PPC’s rating by one notch to
‘B’ in November 2020 and Fitch launching its credit rating on the company in December 2020 at ‘BB-‘, both with
Stable Outlook.
Exhibit 58a. PPC Group Net Debt/EBITDA
Exhibit 59b. PPC Group Interest coverage
(EBITDA/Interest)
Source: The Company, AXIA Research
We also note that the improved funding conditions allows PPC to negotiate better terms with certain customers
that have secured hefty discounts in exchange of upfront accounts payments. In this context we note that Greek
State since 2017 was pre-paying the total consumption for the year (an amount to the tune of EUR 500m) with
a discount of ~15%. Also retail customers are eligible for a 5.0% discount over a 12-month prepayment.
Exhibit 59. PPC Group cash flow
EUR m
2018
2019
2020E
2021F
2022F
2023F
Recurring EBITDA
403.8
333.6
909.4
899.6
1,073.6
1,170.6
Taxes
(160.5)
-
9.3
(2.7)
(49.3)
(75.6)
WC and other
941.0
283.0
(183.0)
39.0
(7.0)
2.0
Capex
(865.4)
(525.2)
(432.0)
(792.2)
(941.3)
(951.4)
Unlevered FCF
318.9
91.4
303.6
143.7
76.1
145.6
Net Financials
(54.6)
(85.9)
(127.3)
(130.6)
(114.8)
(108.0)
FCFE
264.3
5.5
176.3
13.0
(38.7)
37.6
Dividend payment
-
-
-
-
(31.2)
(47.9)
Net Debt
3,692
3,687
3,511
3,498
3,565
3,575
Net Debt/EBITDA-Recurring
9.1 x
11.1 x
3.9 x
3.9 x
3.3 x
3.1 x
Source: AXIA Research
Public Power Corporation – Company Update
AXIA Research Page 34
0.1
0.6 0.7
1.0
0.4
1.2
2020 2021 2022 2023 2024 Beyond
2024
1.6
1.8
0.6 KFW @ 3.5%
IFIs( EIB, BSTDB) @ ~3.5%
GR Commercial Banks @ ~6.0%
Capex needs
Following a period of underinvestment, PPC’s capex bill is expected to start gradually increasing in the coming
years. This is driven by efforts to grow the distribution business asset base and increase RES capacity. We note
that the major expansion capex will be implemented as subsidiary level (HEDNO and PPCR).
Exhibit 60. PPC Group capex plan
EUR m
2017
2018
2019
2020E
2021F
2022F
2023F
2024F
2025F
Conventional Gen.
262.0
521.5
461.2
220.0
150.0
70.0
70.0
70.0
70.0
Distribution
141.0
168.6
149.8
180.0
309.6
504.3
514.4
486.1
491.3
Renewables
0.0
52.5
32.0
15.0
305.6
350.0
350.0
200.0
104.0
Other (inc. supply)
8.0
4.1
3.6
10.0
20.0
10.0
10.0
10.0
10.0
Total capex
411.0
746.7
646.6
425.0
785.2
934.3
944.4
766.1
675.3
Source: The Company, AXIA Research
Exhibit 61a. PPC Group gross debt breakdown 1H20
and effective margin (EUR bn)
Exhibit 61b. PPC’s debt maturities (EUR bn)
Source: The Company, AXIA Research
Debt portfolio composition
In respect of debt composition, EIB is the largest single creditor of the company, holding a traditional funding
relationship, focusing almost exclusively on distribution projects. In this context the company traditionally
keeps available credit lines with the bank that are drawn on a project basis. Maturity wise, there are about EUR
200m of redemptions p.a. that are usually “matched” with the new drawdowns. We note that EIB debt is
guaranteed by the Greek State, thus carries a very competitive cost of ~2.0%. Furthermore we note that
following the carve out of distribution asset from PPC parentCo, the vast majority of IFIs debt will be transferred
to HEDNO and the relationship will be utilized to cover capex funding needs.
Greek commercial banks have traditionally be supportive to the company. The last major financing agreement
was signed in September 2018 for a total amount of EUR 1.8bn in total. This is broken in 3 tranches of EUR
1.2bn (unsecured, with balloon payment in 2023), EUR 200m (secured against arrears and pledged on shares of
PPCR-this facility was used to repay the May 2019 maturing Eurobond) and EUR 175m (secured against arrears).
Those facilities are currently priced at a blended margin of ~6.0%. At this point we understand PPC is in ongoing
discussions with the banks (potentially to reduce its exposure utilizing some of its excess liquidity) in order to
lower its effective cost.
The KFW facility is a project specific finance arrangement related to the construction of the new lignite unit in
Ptolemaida and is guaranteed by the German export agency. The facility is to be gradually repaid until 2027
(just before the unit announced conversation).
Finally we note that as per the credit rating agencies methodology, PPC’s 2 securitization facilities (first one
already executed, second to be executed until end of 1Q21) will be treated as debt-like liabilities. The weighted
average coupon is set at ~5.5% (3.5% for the EUR 200m tranche and 6.8% for the EUR 300m tranche) for EUR
500m of notional and a 3-year tenor. Structuring wise the securitizations sits on 2 deconsolidated SPVs that are
fully responsible for the servicing of the underlying liability through the collection of arrears. PPC does not carry
Public Power Corporation – Company Update
AXIA Research Page 35
4,158.0
4,106.6
4,059.4
4,023.7
4,200.4
4,229.4
4,159.6
4,040.1
4,037.9
4,043.1
4,112.7
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20
441.3 427.1 385.2
278.9
575.1
307.6
252.9
353.1 403.1
589.9
699.1
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20
1.5
2.1
0
0.4
1.85
0.5
0.15 0.5
3.5 3.5
2020E 2023F
Securitization
ParentCo
RES
HEDNO
3.5
0.1
4.3 3.9
4.2
5.1
1.7
3.1
HEDNO RES ParentCo Total
2020E 2023F
any liability or risk from this facility (in case of under-collection). Cash up-streamed to parentCo (EUR 500m) are
to be partially utilized in the Greek banks debt repayment exercise.
Additionally to the drawn facilities, PPC as of 9M20 had committed and un-drawn credit lines of EUR 671m.
Also the group’s cash at hand stood at EUR 643m in 9M20.
Exhibit 62a. PPC Group gross debt (EUR m)
Exhibit 63b. PPC Group cash position EUR m)
Source: The Company, AXIA Research
PPC parentCo – Becoming a “cash cow”
Given the upcoming carve out of distribution asset in favor of HEDNO and the growth of the RES subsidiary, we
examine below the pro-forma estimated cash flow and leverage structure of PPC parentCo.
ParentCo will comprise mainly of the conventional generation and supply divisions, while it will be receiving the
dividend streams from HEDNO (based on the targeted payout policy) and from Renewables (we expect dividend
distributions to start after 2023).
Also parentCo will run on a much lighter capex plan, as capital intensive investments (and associated leverage)
will take place at subsidiaries level.
Exhibit 64a. PPC Group pro-forma Net Debt
breakdown (EUR bn)
Exhibit 64b. PPC Group pro-forma net
debt/EBITDA breakdown (x)*
Source: AXIA Research,
This is expected to allow parentCo to: i) swiftly lower leverage and reduce concerns regarding stranded assets
(especially on thermal production); ii) support with equity the expansion of subsidiaries; ii) pursue additional
growth opportunities either through new business development of M&A (PPC participates in a JV with Motor
Oil to the tender for the sale of State-owned natural gas supply company, DEPA Commercial); iv) establish a
dividend payment strategy for shareholders.
Public Power Corporation – Company Update
AXIA Research Page 36
Exhibit 65. PPC ParentCo pro-forma cash flow
EUR m
2021F
2022F
2023F
EBITDA
438.0
571.9
595.7
Taxes
-11.3
-44.4
-52.2
Income from HEDNO
109.2
113.2
121.6
Maintenance capex
-160.0
-140.0
-110.0
Investments in RES
-200
-200
-50
Unlevered FCF
175.8
300.6
505.2
Interest
-84.6
-56.9
-38.8
FCF to Equity
91.3
243.8
466.3
Source: AXIA Research
Exhibit 66. PPC Group Credit Rating Comps (LTM)
Issuer
Country
Net Debt/EBITDA
(x)
Interest Coverage
(x)
Net Debt/
EBITDA-
CAPEX (x)
Credit
Rating
Agency
ENEA S.A.
Poland
1.3
12.3
3.8
BBB
Fitch
Bulgarian Energy Holding EAD
Bulgaria
1.5
10.2
NM
BB
Fitch
CEZ, a. s.
Czech Republic
1.8
9.4
3.1
A-/A-
S&P/Fitch
TAURON Polska Energia S.A.
Poland
3.4
13.1
39.9
BBB-
Fitch
PGE Polska Grupa Energetyczna S.A.
Poland
1.4
12.2
NM
BBB+
Fitch
Energa SA
Poland
4.1
2.4
NM
BBB-
Fitch
ENERGO - PRO a.s.
Czech Republic
5.6
3.8
11.5
B+/BB-
S&P/Fitch
AB Ignitis grupe
Lithuania
3.8
14.4
NM
BBB+
S&P
Georgian Oil and Gas Corporation
Georgia
2.9
7.1
NM
BB-
S&P
Zagrebacki holding d.o.o.
Croatia
22.2
1.3
NM
B-
S&P
Mytilineos S.A.
Greece
1.7
5.2
2.9
BB-/BB
S&P/Fitch
Titan Cement International S.A.
Belgium
2.6
5.4
3.7
BB
S&P
Ellaktor S.A.
Greece
14.7
1.0
27.1
B-/B+
S&P/Fitch
Public Power Corporation S.A.
Greece
3.7
7.0
6.3
B/BB-
S&P/Fitch
Source: Capital IQ, AXIA Research
Public Power Corporation – Company Update
AXIA Research Page 37
9M20 results review
PPC released its 3Q20 results delivering as expected another strong y-o-y swing in operating profitability with
recurring EBITDA growing to EUR 238.7m (broadly in-line with market estimates, slightly below ours on higher
provisions for materials stock) compared to EUR 87.7m in 3Q19. Performance was driven by the sharp decline
in opex (-16.0% y-o-y) mainly driven by lower energy purchases costs (-36.1% y-o-y), while revenues declined
by 2.5% y-o-y reflecting lower domestic demand (-4.7% y-o-y) and market share loss that was partially mitigated
by higher effective prices and other revenues. For the 9M20 period, the company’s recurring EBITDA stood at
EIR 696.0m, up by 617.5% y-o-y, while reported net profits stand at EUR 12.8m compared to losses of EUR
353.2m in 9M19.
PPC’s revenues from energy sales in 3Q20 amounted to EUR 1,058bn, down by 2.3% y-o-y reflecting the drop
in domestic demand (-4.7% y-o-y) and market share loss while higher effective prices partially mitigated the
drop. Total revenues declined by 2.5% y-o-y to stand at EUR 1,270.5m.
In respect of opex, total opex in 3Q20 declined by 16.0% y-o-y. This was mainly driven by lower fuel and energy
purchases costs that were down by 36.1% y-o-y partially due to lower lignite production volumes, but also lower
prices. In this context natural gas expenses were down by 28.6% y-o-y despite the 20% increase in production
volumes, while liquid fuel expenses were down by 37.8% y-o-y. Also CO2 expenses declined by 41% y-o-y on
lower lignite generation volumes (-57.9% y-o-y). Finally expenses for energy purchases were down by 35.7% y-
o-y reflecting lower merchant prices. In respect of payroll the declining trend of the previous quarters
continued, with expenses down by 6.7% y-o-y. In respect of provisions, bad debt net provisions were at EUR
4.0m (vs. EUR 36m in 1H20), while the company booked an EUR 55.9m provision related mainly to the write
down of materials stock relevant for thermal generation (i.e. lignite decommissioning).
Group recurring EBITDA in 3Q20 came at EUR 238.7m compared to EUR 87.7m in 3Q19 and EUR 275.3m in
2Q20. Below the EBITDA line depreciation stood at EUR 191.6m (vs. EUR 1616m in 3Q19), while net financial
expenses increased to EUR 32.6m (vs. EUR 24.3m in 3Q19) reflecting lower interest income due to arrears
reduction, with adj. EBT coming at EUR 14.8m compared to a loss of EUR 98.5m in 3Q19.
For the 9M20 period total revenues stood at EUR 3,501m (-2.4% y-o-y) and recurring EBITDA stood at EUR 696m
vs. EUR 97m in 9M19. Adj.EBT came at EUR 43.7m vs. a loss of EUR 451.1m in 9M19.
On a reported level affected by negative one-off in payroll 3Q20 EBITDA was at EUR 222.5m, while reported net
losses came at EUR 16.5m vs. net losses of EUR 205.4m in 3Q19. For 9M20 period reported EBITDA is at EUR
708.3m, with reported net income at EUR 12.8m vs. loss of EUR 353.2m in 9M19.
We note that on LTM basis recurring EBITDA is at EUR 932m (or EUR 988m if we adjust for the provision in
3Q20) compared to 2020 management guidance of EUR 850-900m.
Capex in 3Q19 was at EUR 95.7m, with 9M20 capex at EUR 256.3m vs. EUR 508.8m in 9M19 reflecting the lower
expenditure for thermal generation (i.e. completion of Ptolemaida V lignite unit). Net debt at the end of the
quarter settled at EUR 3.413bn, down by EUR 39.6m q-o-q (and vs. EUR 3.9bn in 3Q19). Leverage on an LTM
basis now stands at 3.7x vs. 4.4x in 1H20 and 11.1x in FY2019.
Exhibit 67. PPC’s 9M20 PnL highlights
EUR m
3Q19
3Q20
y-o-y
9M19
9M20
y-o-y
3Q20 AXIA
Total Revenues
1,302.9
1,270.5
-2.5%
3,608.1
3,520.1
-2.4%
1,263.8
Labour
184.2
171.8
-6.7%
571.7
519.2
-9.2%
170.0
Liquid fuels
213.6
132.9
-37.8%
533.3
357.5
-33.0%
140.0
Natural gas
131.2
93.7
-28.6%
353.7
206.0
-41.8%
90.0
CO2
155.8
91.9
-41.0%
406.9
263.1
-35.3%
93.0
Energy purchases
401.1
258.1
-35.7%
1,250.8
847.6
-32.2%
266.0
Bad Debt Provisions
-11.3
4.0
-135.4%
-29.1
40.5
-239.2%
20.0
Transmission system
37.3
35.0
-6.2%
115.8
104.7
-9.6%
33.0
Total opex-recurring
1,215.2
1,031.8
-15.1%
3,511.1
2,824.1
-19.6%
1,017.0
adj.EBITDA
87.7
238.7
172.2%
97.0
696.0
617.5%
246.8
adj. EBT
-98.5
14.8
NM
-451.1
43.7
NM
31.8
Reported EBITDA
87.7
222.5
153.7%
196.3
708.3
260.8%
230.5
EBT
-98.5
-4.6
NM
-416.7
46.6
NM
15.5
Net Income
-205.4
-16.5
nm
-353.2
12.8
NM
12.4
Source: AXIA Research, The Company
Public Power Corporation – Company Update
AXIA Research Page 38
Detailed Financials
Income Statement
2018
2019
2020E
2021F
2022F
2023F
Revenues
4,741.9
4,931.6
4,638.7
4,445.7
4,293.2
4,232.3
Total OPEX
4,593.6
4,132.8
3,787.6
3,601.1
3,274.6
3,116.7
y-o-y
6.6%
-10.0%
-8.4%
-4.9%
-9.1%
-4.8%
Reported EBITDA
148.4
798.9
851.2
844.6
1,018.6
1,115.6
EBITDA margin
3.1%
16.2%
18.3%
19.0%
23.7%
26.4%
adj. EBITDA
403.8
333.6
909.4
900.0
1,073.6
1,170.6
Depreciation and Impairments
920.1
2,760.6
744.7
702.7
698.4
692.4
EBIT
(771.7)
(1,961.7)
106.4
141.9
320.3
423.2
Interest Income
105.2
73.2
58.0
58.0
53.0
53.0
Interest Expense
(184.5)
(170.7)
(185.3)
(188.6)
(167.8)
(161.0)
Net Financials
(79.9)
(98.6)
(137.3)
(130.6)
(114.8)
(108.0)
EBT
(848.9)
(2,057.9)
(30.9)
11.3
205.5
315.1
Income Tax
(55.1)
0.4
9.3
(2.7)
(49.3)
(75.6)
EAT
(903.9)
(2,057.6)
(21.6)
8.6
156.2
239.5
Minorities
0.03
0.12
-
-
-
-
Net Income
(904.0)
(2,057.7)
(21.6)
8.6
156.2
239.5
EPS
(3.90)
(8.87)
(0.09)
0.04
0.67
1.03
adj.Net Income
(324.7)
(424.5)
28.5
50.4
197.9
281.3
adj.EPS
(1.40)
(1.83)
0.12
0.22
0.85
1.21
Declared Dividend (Total)
-
-
-
-
31.2
47.9
DPS
-
-
-
-
0.13
0.21
Balance Sheet
2018
2019
2020F
2021F
2022F
2023F
Total Fixed assets
11,231.2
10,720.8
10,434.0
10,541.2
10,796.6
11,068.2
Investments
20.6
37.6
37.6
37.6
37.6
37.6
Other
215.1
247.1
247.1
247.1
247.1
247.1
Total non-current assets
11,467.0
11,005.5
10,718.7
10,825.8
11,081.3
11,352.9
Inventories
766.3
730.9
508.4
508.4
508.4
508.4
Net Receivables
1,219.9
1,108.4
965.4
1,005.4
935.4
965.4
Other
303.1
373.0
362.6
362.6
352.6
312.6
Cash and equivalent
332.7
354.7
629.1
592.3
525.3
615.4
Total current assets
2,622.0
2,567.0
2,465.5
2,468.6
2,321.7
2,401.7
Total Assets
14,089
13,572
13,184
13,294
13,403
13,755
Total Equity
3,943
3,041
3,019
3,028
3,152
3,344
Interest bearing Bonds and loans
3,190.5
3,560.3
3,660.3
3,610.3
3,610.3
3,710.3
Other non-current liabilities
3,410.8
3,601.3
3,661.3
3,721.3
3,781.3
3,841.3
Total non-current liabilities
6,601.3
7,161.6
7,321.6
7,331.6
7,391.6
7,551.6
Trade and other payables
1,694.1
1,689.2
1,262.9
1,275.4
1,266.2
1,266.2
Short term borrowings
46.5
18.6
18.6
18.6
18.6
18.6
Current portion of debt
714.8
435.7
435.7
435.7
435.7
435.7
Other current liabilities
1,089.2
1,226.7
1,126.3
1,205.5
1,138.4
1,138.4
Total current liabilities
3,544.6
3,370.3
2,843.5
2,935.2
2,858.9
2,858.9
Total Equity and Liabilities
14,089
13,573
13,184
13,294
13,403
13,755
Gross Debt
3,951.7
3,946.9
4,046.9
3,996.9
3,996.9
4,096.9
Net Debt
3,692.4
3,687.0
3,510.8
3,497.7
3,564.6
3,574.6
Net Debt/Recurring EBITDA (x)
9.1
11.1
3.9
3.9
3.3
3.1
Cash Flow
2018
2019
2020F
2021F
2022F
2023F
EBT
(848.9)
(2,057.9)
(30.9)
11.3
205.5
315.1
Non-Cash Adjustments
1,103.4
2,590.8
946.3
835.7
820.6
807.8
WC Changes
1,046.4
90.1
(250.8)
31.7
(16.4)
(10.0)
Income tax paid
(160.5)
-
9.3
(2.7)
(49.3)
(75.6)
Net Cash from operating activities
1,140.4
622.9
673.9
876.0
960.3
1,037.4
Capex
(865.4)
(525.2)
(432.0)
(792.2)
(941.3)
(951.4)
Other investing
169.5
116.3
118.0
118.0
113.0
113.0
Change in debt
(280.8)
(6.1)
100.0
(50.0)
-
100.0
Net Interest paid
(164.2)
(172.2)
(185.3)
(188.6)
(167.8)
(161.0)
Dividends Paid
-
-
-
-
(31.2)
(47.9)
Net increase/(decrease) in cash and equivalent
(0.6)
35.7
274.6
(36.9)
(66.9)
90.0
Year start cash
251.6
251.0
286.8
561.4
524.5
457.6
End year cash (ex-restricted)
251.0
286.8
561.4
524.5
457.6
547.6
Source: The Company, AXIA Research
Public Power Corporation – Company Update
AXIA Research Page 39
Per share data
2018
2019
2020E
2021F
2022F
2023F
EPS
(3.9)
(8.9)
(0.1)
0.0
0.7
1.0
BVPS
17.0
13.1
13.0
13.0
13.6
14.4
DPS
-
-
-
-
0.13
0.21
Valuation ratios
2018
2019
2020E
2021F
2022F
2023F
P/E
n.m.
n.m.
54.4 x
30.8 x
7.8 x
5.5 x
EV/adj.EBITDA
9.9 x
14.0 x
5.6 x
5.6 x
4.8 x
4.4 x
EV/EBIT
-5.2 x
-2.4 x
47.6 x
35.6 x
16.0 x
12.1 x
EV/Sales
0.8 x
0.9 x
1.1 x
1.1 x
1.2 x
1.2 x
P/BV
0.1 x
0.3 x
0.5 x
0.5 x
0.5 x
0.5 x
Div. yield
0.0%
0.0%
0.0%
0.0%
2.0%
3.1%
FCF yield %
93.6%
4.3%
11.3%
0.8%
-2.3%
2.4%
ROA
-0.4%
-5.9%
-14.6%
-0.2%
0.1%
1.2%
ROE
-16.1%
-52.2%
-0.7%
0.3%
5.2%
7.6%
ROIC
-5.0%
-13.2%
0.7%
0.9%
2.1%
2.7%
Growth rates
2018
2019F
2020F
2021F
2022
2023
Revenues
-4.1%
4.0%
-5.9%
-4.2%
-3.4%
-1.4%
EBITDA
-76.6%
438.4%
6.5%
-0.8%
20.6%
9.5%
EBIT
NM
154.2%
-105.4%
33.4%
125.7%
32.1%
EBT
NM
142.4%
-98.5%
-136.5%
NM
53.4%
Net Income
NM
127.6%
-99.0%
-139.7%
NM
53.4%
Profitability ratios
2018
2019F
2020F
2021F
2022
2023
EBITDA margin
3.1%
16.2%
18.3%
19.0%
23.7%
26.4%
EBIT margin
-16.3%
-39.8%
2.3%
3.2%
7.5%
10.0%
Net Income margin
-19.1%
-41.7%
-0.5%
0.2%
3.6%
5.7%
Leverage Ratios
2018
2019F
2020F
2021F
2022
2023
Net Debt/EBITDA
24.9 x
4.6 x
4.1 x
4.1 x
3.5 x
3.2 x
FFO / Total Debt
0.0 x
0.2 x
0.2 x
0.2 x
0.2 x
0.2 x
Gearing (Total debt / Debt+Equity)
0.5 x
0.6 x
0.6 x
0.6 x
0.6 x
0.6 x
Net Debt / Equity
0.9 x
1.2 x
1.2 x
1.2 x
1.1 x
1.1 x
Coverage Ratios
2018
2019F
2020F
2021F
2022
2023
FFO Interest Coverage ((FFO + Int.) / Int.)
1.2 x
8.1 x
6.3 x
6.4 x
8.4 x
9.6 x
Pretax Interest Coverage (EBIT / Int.)
-9.7 x
-19.9 x
0.8 x
1.1 x
2.8 x
3.9 x
Source: The Company, AXIA Research
Public Power Corporation – Company Update
AXIA Research Page 40
Disclosures
General information
This research report was prepared by AXIA Ventures Group Limited, a company incorporated under the laws of Cyprus (referred to herein,
together with its subsidiary companies and affiliates, collectively, as “AXIA”) which is authorised and regulated by the Cyprus Securities and
Exchange Commission (authorisation number 086/07). AXIA is authorized to provide investment services in the United Kingdom, Cyprus,
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Content of the report
The persons in charge of the preparation of this report, the names of whom are disclosed below, certify that the views and opinions expressed
on the subject security, issuer, companies or businesses covered by this research report (each a “Subject Company” and, collectively, the
“Subject Companies”) are their personal opinions and that no part of their compensation was, is or will be directly or indirectly related to
the specific recommendations or views contained in this research report.
Whilst all substantial sources of information for the research are indicated in this report, including, without limitation, bases of valuation
applied to any security or derivative security, such information has not been disclosed to the Subject Companies for their comments and no
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All information contained herein is subject to change at any time without notice. No member of AXIA has an obligation to update, modify or
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Persons responsible for this report: Argyrios Gkonis (Analyst), Constantinos Zouzoulas (Head of research).
Key Definitions
AXIA Research 12-month rating*
Buy
The stock to generate total return** of and above 10% within the next 12-months
Neutral
The stock to generate total return**between -10% and 10% within the next 12-
months
Sell
The stock to generate total return** of and below -10% within the next 12 months
Under Review
Stock’s target price or rating is subject to possible change
Restricted
Applicable Laws / Regulation and AXIA Ventures Group Limited policies might
restrict certain types of communication and investment recommendations
Not Rated
There is no rating for the company by AXIA Ventures Group Limited
* Exceptions to the bands may be granted by the Investment Review Committee of AXIA taking into account specific characteristics of the
Subject Company
**Total return: % price appreciation equals percentage change in share price from current price to projected target price plus projected
dividend yield.
Rating history for Public Power Corporation S.A.
Date
Rating
Share Price (EUR)
Target Price (EUR)
31/10/2013
Buy
10.67
12.60
26/04/2014
Buy
11.21
13.30
26/02/2015
Buy
7.5
8.90
25/05/2015
Under Review
5.06
U/R
03/06/2015
Neutral
4.68
5.50
08/03/2015
Under Review
4.14
U/R
18/12/2015
Sell
4.17
3.70
18/04/2016
Neutral
2.96
2.90
02/11/2016
Neutral
2.93
3.20
29/03/2017
Neutral
2.75
3.20
22/06/2017
Under Review
2.31
U/R
18/07/2017
Neutral
2.30
2.20
11/09/2018
Neutral
1.60
1.80
03/07/2019
Neutral
2.34
1.90
29/11/2019
Buy
3.15
7.30
Public Power Corporation – Company Update
AXIA Research Page 41
30/30/2020
Buy
2.20
7.30
16/06/2020
Buy
3.34
7.30
28/01/2021
Buy
6.68
15.10
AXIA Ventures Group Limited Rating Distribution as of today
Coverage Universe
Count
Percent
Of which Investment
Banking Relationships
Count
Percent
Buy
15
79%
4
4
21%
Neutral
2
10.5%
Sell
Restricted
Not Rated
Under Review
2
10.5%
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Public Power Corporation – Company Update
AXIA Research Page 42
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Public Power Corporation – Company Update
AXIA Research Page 43
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