Elia: Looking for traction

Elia reports its FY11 results on Wednesday 29 February before market. An analyst meeting is scheduled the same day at 9am CET. We expect Elia to report net profit of € 121.7m, split between Belgium (€ 94.7m) and 50Hertz (€ 27m). On a Group level we see revenue at € 1,274m, EBITDA at € 447.2m and EBIT at € 300.6m.
Helped by the first dividend from 50Hertz of € 36.4m, the increase in the Belgian OLO-rate over 2011 and visibility regarding Belgian tariffs for 2012-2015, we expect management to propose a dividend of € 1.45/sh (from € 1.40/sh), equivalent to a gross yield of ~5.0%.
We hope management can address some of the following topics:

1: New CEO
Last year Elia announced that Jacques Vandermeiren had been selected to become the CEO and Chairman of Elia's Executive Committee from 2H12. Mr. Vandermeiren will replace the current CEO Daniel Dobbeni. We hope that the FY11 results will be a first opportunity for investors to meet the company's next head.

2: New regulatory period
The CREG published new tariffs for Elia for the period 2012-2015. The main impact for shareholders can be condensed down to four key elements: 1/ Beta; 2/ Y1-factor; 3/ Y2-factor; and 4/ goodwill decommissioning. Overall, the changes will have positive impacts of respectively € 0.9m and € 2.3m on our previous FY12 and FY13 numbers. We expect management to provide extra clarity.

3: German regulatory regime
50Hertz is still a black-box to most observers, and we hope management can provide some more insight in to the underlying building blocks that will lead to net profit. Clear profit guidance would be welcome, since the German activities are less transparent than the long-term Belgian regulatory regime that Elia investors are used to. Furthermore, with German peer Tennet stating that it is unable to install all offshore grid connections on schedule (despite being legally obliged to do so) and a huge offshore wind program in the offing, we would welcome some feedback from Elia’s side.

Conclusion:
We keep our TP at € 31.5/sh and stick to our Accumulate rating. Taking an implied gross yield of 4.5-5.0% (dividend 2011E of € 1.45/sh) this would value the stock at € 29-32/sh. With the dividend likely to rise going forward, we also expect the share to climb gradually.