Valuation
In our valuation, we chose to value each segment separately as we believe each segment has different return factors and risks associated with its operations. Then, to estimate the target share price, we add up the enterprise value of each segment and subtract net debt (in net debt calculation we included debt related to LTC in the amount of approx. PLN 375mn) and minority at the end of 2022e.
In the valuation of distribution, gas, heat, sales and other segments, we used a 10- year DCF.
- Risk free rate 6.2% (vs. 7.2% assumed in our last report) in the period 2023- 32e and 4% in TV
- ERP 6.0% in the period 2023-32e and 5% in TV
- Debt premium 2.5%
- Tax rate 19%
- Unleveraged beta of 0.8x
Kogeneracja S.A. (parent company, excluding gas unit in Czechnica)
EC Zielona Góra
Czechnica new gas unit
We do not change the key assumptions in the valuation of Czechnica project. We assume that it will be launch by the end of 2024e and we assume total EBITDA in the period 2025-32e at PLN 2136mn (vs. PLN 2196mn assumed earlier). However, because capex in 2023-24e will be lower by PLN 229mn compared to our previous estimates (the company spent more capex in 2022 and we assume that capital expenditures in 2023-24e will be lower than previously assumed) and due to lower risk-free rate, we are raising our valuation from PLN 583mn to PLN 815mn.
Valuation summary
Risk factors
Risk of coal, gas and CO2 prices. High volatility of fuels and CO2 prices can lead to high volatility of company’s results as tariffs approved by ERO usually lags the cost of heat production and level of tariff may not reflect all costs related to sales of heat.
Risk of change of hedging policy. Until now company seemed to conduct proper hedging policy - average price of electricity sales, cost of CO2 and cost of coal usually followed benchmarks, which provided high predictability of results. However, if company would decide to change its hedging policy (for example due to growing debt levels), it could impact our forecasts for the upcoming years.
Risk of load factors. If the gas prices will remain at high level longer than we assumed, the load factors of EC Zielona Góra and new Czechnica may stay at much lower levels.
Risk of growing cost of construction of new Czechnica. In the light of growing cost of raw materials, we see the risk that capex for new Czechnica would exceed the budged, which can reduce the profitability of this project.
Peers valuation
Analyst: Marcin Gornik
+48 691 701 088
marcin.gornik@pekao.com.pl
GPW’s Analytical Coverage Support Programme 3.0
