Given the turbulent financial markets and the lack of transposition of the 3rd Energy Directive (not yet transposed in Belgian law, The CREG will likely have more decision power, Elia is negotiating new tariffs for 2012-15), Elia’s Board of Directors decided to withdraw the capital increase reserved for its employees, which it had planned to put to vote during the EGM of 26 October.
Our view:
We believe the company wants to take a very prudent stance - like they have always tended to do in the past -and believe the decision to propose a capital increase for the employees just ahead of a new regulatory period (2012-2015) was rather imprudent.
From previous discussions with management, and based on what has been published in the press, Guido Camps - Director Pricing CREG -has always been very clear that Elia is a very cost aware company, with no excessive tariffs (amongst the lowest across Europe) and that if there would be a tariff cut, it will be in all likelihood be at the level DSO's (if that’s still the jurisdiction of The CREG – see Vlinderakkoord Di Rupo 11 October 2011).
Conclusion:
We stick to our Accumulate rating and € 31.5/sh TP on Elia, and acknowledge that the upside to move to € 34/sh on supportive regulatory changes in Germany looks uncertain in the short term while regulated utilities always tend to underperform the year prior to a new regulatory period (this time it could be an exception given the flight to safety).