In November 2022, the Polish government adopted regulations that require all energy producers to transfer all revenues above the certain price cap to the Price Differences Fund. Funds collected in this way will be then paid to sales companies to finance the freezes of electricity prices for households and SME. The price caps for fossil fuels will be equal to cost of fuels and CO2 used for electricity generation plus PLN 50/MWh premium to cover fixed costs plus 3% margin of power price (80%TGeBase+20%TGePeak). We assume that such a structure of price caps will allow, on average, to cover only all variable and fixed costs related to energy generation. Therefore, we believe that the generators' EBITDA will be equal to the result on heat production and CRM revenues. This construction of price caps is particularly unfavorable for EC Zielona Góra, which was to benefit from a long-term contract for gas supplies from PGNiG, where the price was indexed to inflation. In the light of these regulations, the company will not be able to achieve the exceptionally high results assumed in our last report. Therefore, we cut our EBITDA forecast in 2023/24e to PLN 136/121mn (vs. PLN 216/145mn assumed earlier) and we cut our valuation of EC Zielona Góra to PLN 212mn (vs. PLN 273mn assumed earlier).
The results of Kogeneracja S.A. should also be similar to the result on sales of heat and CRM, however, we previously assumed that this unit, due to high coal prices, would not be able to achieve exceptionally high results on sales of electricity. On the other hand, we underline that ERO has approved relatively high tariff for heat of PLN 70/GJ in 2023e (vs. PLN 42/GJ in 2022). In total, we forecast EBITDA of PLN -2/130mn in 2023/24e (vs. PLN 62/150mn assumed earlier).
We do not change key assumption in valuation of Czechnica CHP. However, we reduce the capex to be spend in 2023/24e by PLN 229mn (company spend more capex in 2022). Due to that and taking into account lower risk free rate, raise our valuation of this unit to PLN 815mn (vs. PLN 582mn assumed earlier).
Summarizing, due to implementation of price caps, we cut our valuation of EC Zielona Góra to PLN 212mn (vs. PLN 273mn estimated in our last report) and Kogeneracja to PLN 367mn (vs. PLN 387mn estimated in our last report). We also raise our valuation of Czechnica CHP to PLN 815mn (vs. PLN 582mn assumed earlier) as capex to be spend in 2023-24e will be lower by PLN 229mn. In total, we value company’s shares at PLN 28.4/sh and maintain our hold recommendation.
Recent developments
4Q22 results
Kogeneracja repored 4Q22 final results with the following highlights:
- Revenues amounted to PLN 631mn (vs. PLN 468mn year ago, in line with preliminary)
- EBITDA amounted to PLN 133mn (vs. PLN 37mn year ago, in line with preliminary)
- EBIT of parent company amounted to PLN 8mn (vs. PLN -4mn year ago)
- EBIT of EC Zielona Góra amounted to PLN 73mn (vs. PLN -16mn year ago)
- Net income amounted to PLN 74mn (in line with preliminary)
- Sales of electricity amounted to TWh 0.8 (-2% y/y)
- Sales of heat amounted to TJ 3681 (-9% y/y)
Our view: NEUTRAL
Company delivered result in line with preliminary, therefore they are neutral for us. We underline that strong result improvement on y/y basis is related to very good result of EC Zielona Góra with EBIT of PLN 73mn (vs. PLN -16mn year ago). Such good result of EC Zielona Góra, in our view, was related to company’s gas contract with PGNIG with the gas price indexed by inflation rate. As a result average revenues per GJ amounted to PLN 187/GJ (+74% y/y) while OPEX increased only by 17% y/y (PLN 136/GJ) and due to this fact company was able to deliver extraordinary high results.
We underline that due to implementation of price caps since December 2022, company will not be able to realized such high margins in the coming quarters as it is oblige to pay the excess above price cap to the price difference payment fund. In the preliminary note, company informed on the recognition of cost of write-off for price difference payment fund in 4Q22 at PLN 21mn. We underline that company is oblige to pay for write-off difference fund since December 2022. Assuming that Kogeneracja will be paying such amount in each month of 2023, the write-off would amount to PLN 252mn. However, we believe that this amount would be even higher as price hedged for 2023 are much higher than for 2022, therefore the amount paid per each MWh in 2023 will be much higher than in 2022, we believe.
Continue reading: ZEW Kogeneracja - Financial forecasts & Macro assumptions| FXMAG.COM
Analyst: Marcin Gornik
+48 691 701 088
marcin.gornik@pekao.com.pl
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