Erste downgrades Transelectrica to 'accumulate'

Erste downgraded recommendation for the stocks of power supplier Transelectrica (BSE:TEL) from “buy” to “accumulate” and lowered target price from 26.8lei to 14.4 lei/share, Erste said in a press release.
In spite of the fact that 2009 net profit could be below the 2008 level, this negative news should be already priced in.

“Our view is that future operating profitability will limit the need for cash inflows and that the company will remain financially sound, with a rather low gearing level, in spite of the substantially higher CAPEX plan (worth EUR 1.2bn) considered for 2009-17.

Unlike similar companies, which are priced favorably by the market - recognized for their “safe investment” status - market sentiment toward Transelectrica deteriorated substantially after the 2007 operating result was affected by an arbitrary decision from the regulatory authority and the 2008 net result was strongly adjusted, with unrealized losses on domestic currency depreciation versus the euro.

Erste analysts estimate that 2009 EBITDA will be 10% lower y/y, driven by a large decrease of electricity consumption this year.

“We consider Transelectrica quite an interesting stock for next year. After a weak 2009, EBITDA should substantially increase (by over 30%) in 2010, fuelled by an increase of the transmission tariff - estimated at 9.3% y/y”, Erste said.

Transelectrica revised upward its net profit for this year, by 6.6% up to 41.9 million lei on 26.3% growth of turnover, up to 2.92 bln lei (796.2 million euros).

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