Sunday, June 21, 2015

Analysis of Electrica


Electrica, a Romanian electricity company

Company: Electrica

ISIN US83367Y2072 | WKN A116CN 

Business: A Romanian electricity company. They are working with three things: Electric Power Distribution (simply operating the electricity grid), Electric Power Supply (client supply as well as import/export and trading of electricity) and finally Services (maintenance etc).

Active: Romania

P/E: 14.3


This company was analysed due to a request from Falk posted on the Analysis Requests page.

contrarian values of P/E, P/B, ROE as well as dividend for Electrica

The P/E of Electrica is so, so with 14.3 but the P/B is excellent which gives a clear buy from Graham. Their earnings to sales are ok with 6% but the ROE is not so good with only 5.2%. The book to debt ratio is excellent with 3.0 and they are sitting with plenty of cash since the IPO.
In the last five years they have had a very poor yearly growth rate of -1.2% which gives us a motivated P/E of 8 to 10 which means that Electrica is today a bit overvalued on the market.
They pay a tiny (almost silly) dividend of 0.9% which only represents 13% of their earnings so plenty of space to improve upwards. They did spend a bit more of their earnings on share buy back program so on one hand they had an IPO and on the other hand they buy back shares. Hmmm....

Conclusion: Graham and Falk says yes to Electrica but I am less up beat on this one. My blog colleague valueandopportunity (you can find him in the blogroll) have written about Electrica and also initiated a position. To me there is no value that makes me really excited besides from the P/B and that is not enough for me. Sure they can make plenty of interesting things with the cash but will they? Or will they only continue to buy back shares?

If this analysis is outdated then you can request a new one.

4 comments:

Falk said...

Hi Fredrik,

thank you for your analysis. How did you calculate the stock yield? The company distributes 85 percent of its profits. The dividend of 2014/2015 is 0.7217 RON per share, so based on the current share price of 11.88 RON the yield should be about 6 percent:
http://www.electrica.ro/wp-content/uploads/2015/03/ELSA_RO_EN_AGOA_OGMS_item_04.pdf

Regards
Falk

Fredrik von Oberhausen said...

Hi Falk,

I was having some trouble with the dividend payment. I did read about the 85% but I only found that information on pages outside of their homepage so I did not use it. I therefore, in the end, included the dividend that they paid out during 2014 for year 2013.

The link you included very clearly shows that they do indeed pay out 85% of their earnings in dividends.

Do you know how much taxes they withhold in Romania?

Name said...

They withhold 16 percent. 15 percent are deductable from german Kapitalertragsteuer. So you pay 1 percent additional to a german company dividend.

Fredrik von Oberhausen said...

Ok, that is not a bad deal at all! Thanks for the information!