Elia released a 1Q11 trading update containing little to no surprises. The Group confirms the pay out of a gross dividend of € 1.4/sh on 25 May 2011 (ex dividend 20 May). Furthermore, no guidance for the year was provided given the lack of clarity on some parameters (inflation figure, Belgian 10y OLO-rate, Beta, total investment 50Hertz).
Elia noted that as expected it will receive first dividends from 50Hertz in the second half of 2011. These will amount to € 60m, 60% of which (€ 36m) destined for Elia. This supports our view that Elia will continue to lift its dividend going forward. Our estimates are for an annual increase over the coming three years of 3.5% p.a. We don’t believe management is in favour for sharp increases in the dividend since this would disrupt the relationship with the regulator, while cash needs to be preserved for the capital intensiveinvestments to be made in Belgium, but especially in Germany.
When referring to capex, we noted that 50Hertz reduced 2011 spending to € 200m from € 260m due to delays with building permits. We don’t see this necessarily as a bad thing since it should further reduce fears of investors that Elia would need to raise further equity because of a large capex program in Germany, while at the same time it limits the increase in its profits (RABdriven).
Conclusion:
We keep our TP at € 31.5/sh and Accumulate rating. Taking an implied gross yield of 4.5-5.0% (dividend of € 1.4/sh) this would value the stock at € 28- 31/sh. With the dividend likely to move up going forward, we expect the shares to gradually continue their way up.