Estimates/PT down on lower commodity prices and stronger EUR
We revise down forecasts to reflect mark-to-market gas/coal prices and
stronger EUR vs. USD and Latam currencies. With less upside from the
commodity-exposed names, we highlight value we see from others
sources of growth: wind developers and manufacturers, European GDP
growth, consolidation and distressed value in German power.
Acciona to CL Buy, Elia to Buy, both from Neutral
We upgrade Acciona to Buy, from Neutral, and add it to the Conviction List,
as the shares trade on a significant sector-relative discount in terms of
2016/17/18E P/E and EV/EBITDA. We believe Acciona combines growth
(27% EPS CAGR 2015-17E) from wind development and Spanish GDP with
deleveraging, and expect this to trigger a doubling of the DPS in 2016
(leading to >6% dividend yield). We see average upside to I/B/E/S
consensus EPS of 26% in 2015-18E and our 12m PT implies 32% upside.
We also upgrade regulated utility Elia to Buy, from Neutral, on higher
earnings forecasts reflecting a better regulatory environment.
CEZ to Sell from Neutral; Fortum to Neutral from Buy
We downgrade commodity-levered generator CEZ to Sell as we view the
sector-relative premium as unjustified by the poor outlook for EPS and DPS
through 2017E. We view the shares as fairly valued on our revised 12m
price target, which is unattractive relative to the average sector upside of
c.23%. We reduce our Fortum rating to Neutral after recent outperformance
and to reflect a more cautious outlook for Nordic power prices.
Reiterate CL Buy on E.ON, Vestas and Hera
E.ON’s shares are trading at a significant discount (c.30%) vs. just the value
of the regulated/renewable assets. We see the planned demerger as a
significant catalyst for the stock as it should crystalize upside to the SOTP
(which we value at €19/sh) and highlight the DPS upside (we forecast a
doubling to 2017 implying a 13% yield). The next catalyst we see is clarity
on balance sheet/provisions which, unlike the market, we believe is robust.
We see Vestas as the least expensive company levered to growth from
wind manufacturing. Our Vestas forecasts are 16% above I/B/E/S
consensus in 2015-17 on average. We see Hera as providing exposure to
strong growth from consolidation of the Italian local utility sector and see
14%-25% upside to Reuters consensus in 2016-17.