London, UK, 7 May 2019

Edison initiates coverage on ADMIE Holding (ADMIE)

ADMIE Holding offers exposure to growth in the Greek electricity transmission grid IPTO, a regulated utility with significant growth opportunities from investments in new transmission lines. IPTO's underleveraged balance sheet (0.9x adjusted net debt/EBITDA at the end of 2018) sustains a c EUR4bn investment plan, which we estimate will result in a regulated asset base (RAB) CAGR of 11% in 2018-27. Although we believe the regulatory allowed rate of return is set at a level in line with cost of capital and the company has strong growth potential, ADMIE Holding's current share price implies a c 40% discount to 2019 equity RAB (including work in progress) and a more than 20% discount to EU regulated utilities' P/E multiples.

Despite the growth potential, the stock is trading at a discount of c 30% to average European regulated utilities' P/E ratios. We believe the current allowed regulatory rate of return for IPTO is broadly in line with the cost of capital, even though the stock is trading at a c 40% discount to FY19 equity RAB. An RAB-based valuation of EUR2.83/share implies c 60% upside to the current share price. While a key risk for our investment case is a delay in the implementation of the capex plan, which would result in a lower earnings and dividend growth outlook, we note that the current valuation does not appear to incorporate any growth potential.

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