Dear Shareholders,
Earnings as at 30 September 2018 show a stronger growth than that already achieved in the First-Half Report. Even though Q3 has a lower weight compared to other quarters on full-year earnings, due to the seasonality of the gas business, results released today clearly prove the effectiveness of Hera’s business model and its capability to execute the Business Plan.
Performance achieved in Q3 confirms earnings quality and their acceleration
In the nine-month period, growth was well balanced across the main businesses and essentially organic. It therefore provides evidence of Hera’s ability to use innovation for a continuous increase in the efficiency of operations, while extracting synergies from the acquisitions of past years. Moreover, the 9-month growth proves the Company’s capacity to compete in liberalised businesses, where it has shown its ability to retain historic customers and effectively expand the number of users served.
In nine-month 2018 results, strong cash flow generation continues to fund capex and dividends (over 150 million euro paid to shareholders last June), while net financial debt remains at a level not far from that as at 30 September 2017, definitely sustainable if compared with EBITDA.
Hera therefore continues to execute faithfully the growth strategy indicated in the Business Plan, by managing operations and finance in a way that minimises the risk profile, with the aim to provide attractive returns to shareholders, staying immune to the unfavourable external environment in the financial markets.
We remain a strong issuer, with a rating exceeding that of sovereign bonds
Recently, Moody’s downgraded Hera’s credit rating to Baa2, with a stable outlook. That only happened because Hera rating, as that of any corporate issuer, cannot exceed by more than one notch the sovereign credit rating. Having downgraded to Baa3 the Government of Italy rating, Hera’s downgrading was unavoidable. Our debt mainly consists of medium-to-long term and fixed-rate bonds, issued on the European market and listed on the Luxembourg Stock Exchange, with reimbursement upon maturity in one go. The average duration is around seven years. Our financial structure therefore remains solid, effectively structured, with a competitive and sustainable cost in the medium-long term.
Considering broker target prices, our shares trade at a discount of more than 30%
Even though the stock market scenario resulted in heavily penalising utilities, given the negative correlation of the sector stock prices with interest rate levels, Hera’s consensus target price remained substantially unchanged, due to the healthy picture of fundamentals and the substantial neutrality of financial charges with respect to spread movements. Today, the average target price is 3.32 euro; a level indicating significant room for price hikes compared to recent stock prices; even more so, following the convincing results as at 30 September 2018.
Lastly, 9m 2018 Earnings per Share amount to 14.2 euro cts. Even from this viewpoint, the 2018 Dividend per Share strengthens its visibility, considering that the Business Plan envisages an increase from 9.5 to 10.0 euro cents.
We are working to create value. We expect that value to be incorporated in the stock price
In Q4, we will keep on struggling to best manage our business portfolio and structure a new Business Plan that will guide our steps towards greater sustainability and profitability. In the meantime, we are confident that financial markets will incorporate in Hera’s stock price the value that the Company has created and will create over time.
