Company report Fondul Proprietatea
03 November 2016
Fondul Proprietatea • November 2016
Fondul Proprietatea: New listings are the main driver
Listed in the beginning of 2011 on the main segment of the SUMMARY Bucharest Stock Exchange, Fondul Proprietatea (ticker:FP) is the Industry Financial Services most traded security on the local market, with transactions of over Sector Investment Services 12.68 bn RON. For example, Banca Transilvania, the second most
Market cap 8816.54 mln RON traded stock, has totaled transactions of approximately 5.30 bn RON VUAN during the same period. Fondul Proprietatea is one of the biggest 1.1698 RON (30.09.2016) closed end funds in the region, with net assets of 11.40 bn RON, and Discount to NAV 31.27% is managed by Franklyn Templeton Investments since September 2010. Current price 0.8040 RON/share Target price 0.9106 RON/share FP shares have tumbled in the first half of the year, in line with the Potential +13,26% market, but managed to recover most of the losses in the following Rating Buy months, and are now trading at 0.8040 RON/share, meaning a loss of just 0.74% since the end of 2015. Adjusted with the return of Note: The price used in the report is the capital of 0.05 RON/share, the loss turns into a gain of 5.53%. The closing price as of the 2nd of November Fund had a busy year, with a partial sale of its stake in OMV Petrom via an SPO, sales of the entire participation in E.ON Energie Romania, E.ON Distributie Romania and Romgaz and a tender offer related to the 6th buy-back program. The Fund’s NAV/share grew by 1.16% YTD, reaching the level of 1.1698 RON/share as of 30th October. However, FP shares are currently trading at a discount to NAV of 31.3%, well over the Fund’s objective of 15%.
We value FP shares at 0.9106 RON/share, meaning a 13.26% potential, using the sum of the parts (SOTP) method. Listed companies were valued by applying a discount between 5% and 20% to the current market value. For unlisted companies, we have used Relative Value for companies where the method is relevant, to which we applied a further discount between 5% and 15%, depending on the company’s management and corporate transparency. For the companies where Relative Value could not be applied, we used Fondul Proprietatea’s latest evaluations, to which we applied a 20% discount. We then added a 15% discount to the determined fair value of NAV in order to reach the target price. We see new listings as the main driver for FP shares, followed by the possible promotion of BSE by FTSE Russell in the emerging markets list. Furthermore, even though buy-back programs and capital distributions have yet to deliver the desired effect, namely the reduction in discount to NAV, we still see the two corporate actions as important drivers for Fondul Proprietatea.
(mln RON) NAV at June 30 Current NAV* Fair value NAV Listed companies 3147.70 2225.16 2102.30 GENERAL DATA Unlisted companies 7372.78 7372.78 6833.70 Net cash and Company Fondul Proprietatea 1284.02 1464.76 1464.76 receivables Str. Buzesti nr. 78-80, NAV 11804.51 11062.70 10400.76 Address sector 1, Bucuresti ** No. of shares 10313.67 9708.16 9708.16 Phone (021) 2009600 (mln) NAV/Share 1.1445 1.1395 1.0713 Fax (021) 2009631 Discount - 15% Target price - 0.9106 Email [email protected] Source: Fondul Proprietatea, Intercapital Invest *current NAV was determined based on the H1 report, adjusted with the montly report from Website www.fondulproprietatea.ro september and the details from OMV Petrom’s SPO Fiscal Code 18253260 **the number of shares is the one used by FP in NAV calculations, and does not include own shares or unpaid shares Greg Konieczny Managers Johan Meyer
Page 2 Fondul Proprietatea • November 2016
Fund’s Management
Fondul Proprietatea’s Manager, Franklyn Templeton, has two performance objectives, according to the Fund’s Investment Policy Statement; one objective linked to the Fund’s NAV and another one linked to the discount to NAV. The NAV objective states that the level of adjusted NAV/Share at the end of the reporting period should be higher than the reported NAV on the 30th of June, 2015. The discount objectives states that the discount between the closing price and NAV should be lower than 15% for at least two thirds of the trading sessions during the reported period. The Fund uses buy-back programs and capital distributions in order to meet the discount objective.
The current discount to NAV is 31.27%, higher than the level of 29.96%, recorded at the end of 2015, and also much higher than the 15% objective. The Fund’s NAV grew by 1.16% YTD. The following chart presents the monthly historical values of NAV and Discount to NAV since 2014.
Discount NAV/share 40.00% 1.25
35.00% 1.20 30.00%
25.00% 1.15 20.00%
15.00% 1.10
10.00% 1.05 5.00%
0.00% 1.00
Source: Fondul Proprietatea, Intercapital Invest
Buy-back programs
Fondul Proprietatea started the 1st buyback program in 2011, with the intention of returning value to shareholders by other means besides dividends, by increasing the Fund’s NAV. The issuer has completed six programs until know, totaling 3.70 bn shares, while the 7th program is ongoing.
Once a buy-back program is completed, Fondul Proprietatea convenes a shareholders meeting in order to cancel the acquired shares and to decrease the share capital. The capital decrease goes into effect only after the approval from ASF, which usually takes about four months, while the number of own shares the Fund holds at any given time, has to be less than 10% of the share capital. As such, larger buy-back programs are followed by smaller ones, in order to not surpass the 10% limit regarding acquired shares until the capital decrease goes into effect.
Page 3 Fondul Proprietatea • November 2016
No. of shares Canceled Program Period Status (mln) shares 1 May - September 2011 240.30 ended Yes 2 April - December 2013 1100.95 ended Yes 3 March - July 2014 252.86 ended Yes October 2014 - February 4 990.86 ended Yes 2015 5 February - July 2015 227.57 ended Yes 179.60 mln September 2015 - 6 891.77 ended shares September 2016 canceled September 2016 - 29.91 mln 7 366.45 - estimated May 2017 shares bought Estimated to begin in Q3 8 640.95 announced - 2017 Source: Fondul Proprietatea, Intercapital Invest
The shareholders approved the cancellation of the shares acquired during the 6th buy-back program in two stages, with the first one being already registered on the 27th of October. Once the remainder of the capital decrease from the 6th program takes place, the new share capital will total a number of 10,074.08 mln shares. Seeing as the 7th program targets a number of 366.45 mln shares, the 8th one, which was approved on 11th of October, will target a number of maximum 640.96 mln shares, as to not go over the 10% limit mentioned previously.
The buy-back transactions are made on the open market or through tender offers. The Fund used tender offers during the 2nd, 4th and 6th programs, offering a premium compared to the market price in order to stimulate shareholders to participate in the offer.
**Discount Total no of Tender offer *Premium to Program Price tender offer shares (mln) (mln shares) market price price to NAV 2 1100,95 600,00 1,00 38,31% -13,87%
4 990,86 750,00 1,11 23,81% -8,02%
6 891,77 575,00 0,84 14,09% -22,44%
Source: Fondul Proprietatea, Intercapital Invest * closing price in the day prior to the announcement **last reported NAV before the announcement
In the last tender offer, the premium offered was lower than in the previous ones. Representatives from the Fund motivated the lower premium offered in the tender offer by stating that institutional investors complained in the past that they were forced to take part in the offer, due to the high premium, but then had to buy back the shares sold from the market. Furthermore, there were no long term positive effects on the discount to NAV after the first two tender offers, as share prices returned to the levels recorded before the offers. As such, the Fund Manager decided to try a new strategy, offering a lower premium in the last tender offer compared to the previous ones.
Page 4 Fondul Proprietatea • November 2016
Returns of capital
Starting in 2014, Fondul Proprietatea replaced dividends with returns of capital by reducing the nominal value of shares. The Fund was forced to do so as in order to pay dividends, Fondul Proprietatea’s NAV had to be larger than its share capital, according to Company Law, article 69. However, at that time, ASF decided to replace the NAV with the shareholders’ equity and Fondul Proprietatea did not meet the requirement needed to pay dividends. An advantage of returns of capital over dividends is that they are not taxable.
Date of Year Value per share Type Price Yield GSM 0.0500 announced 0.8050 6.21% n.a 2017 special distribution - 31.10.2016 0.0500 0.8050 6.21% return of capitall 2016 0.0500 return of capital 0.7570 6.61% 27.01.2016
2015 0.0500 return of capital 0.8510 5.88% 21.01.2015
2014 0.0500 return of capital 0.8040 6.22% 03.02.2014
Source: Fondul Proprietatea Fondul Proprietatea’s shareholders approved, in the meeting on 31st October 2016, a return of capital of 0.05 RON /share. The Fund announced that the distribution is a special one, complementary to the usual one, which will be proposed in a GSM in the beginning of the next year with the value of at least 0.05 RON/share. As such, the Fund will pay shareholders at least 0.1 RON/share in the following year, meaning a yield of 12.42% at the current prices. Moreover, shareholders approved the coverage of the accumulated losses as of 31st of December 2015, through the decrease of the subscribed share capital. This operation allows the Fund to pay dividends, as in order to do this the accumulated loss at the end of a financial year must be covered by the profits from the following year.
In the absence of investment opportunities or if the discount to NAV is higher than 15%, Fondul Proprietatea will direct revenues from dividends and asset sales to accomplish the performance objectives through the aforementioned actions, returns of capital and buy-back programs. In the first half of 2016, proceeds from dividends totaled 346.9 mln RON, 20.16% lower than H1 2015, mainly as a result of OMV Petrom not distributing dividends. Net gains from asset disposals reached 913.1 mln RON, after the sales of stakes in Romgaz, E.ON Distributie Romania and E.ON Furnizare Romania.
Earnings from dividends as of end of June 2016
Hidroelectrica
EDTN 22.83% CN Aeroporturi 38.80% Bucuresti EDMN 7.06% EDTS
7.58% Electrica Furnizare
7.75% Other 7.90% 8.07%
Source: Fondul Proprietatea, Intercapital Invest Page 5 Fondul Proprietatea • November 2016
Fund’s portfolio
The last detailed structure of the Fund’s portfolio is at the end of June, 2016. Taking into consideration the OMV Petrom SPO, in order to present the Fund’s investments we have adjusted the last structure with the known details from the SPO and other changes that result from the Fund’s monthly report. As such, the differences between the current portfolio and the one at 30th of June are in regards to the stakes in OMV Petrom and Banca Transilvania, the latter as a result of the allocation of free shares. Furthermore, the net cash and receivables position increased, due to the proceedings from the partial sale of OMV Petrom. Total value (mln Company No of shares (mln) Price per share Weight in NAV FP’s valuation method RON) Listed companies OMV Petrom 7117.55 0.2255 1605.01 14.5083% Market price BRD-SG 25.36 10.9800 278.49 2.5174% Market price Nuclearelectrica 27.41 4.9200 134.85 1.2190% Market price Alro Slatina 72.88 1.2100 88.19 0.7972% Market price Conpet 0.52 80.0000 41.95 0.3792% Market price Romaero 1.31 20.0000 26.23 0.2371% Market price Banca Transilvania 8.62 2.3150 19.96 0.1804% Market price Primcom 1.28 10.1000 12.88 0.1164% Market price
Alcom 0.09 113.5420 10.13 0.0916% Book values as of end of 2015
Oil Terminal 36.80 0.0962 3.54 0.0320% Market price Palace 5.83 0.4690 2.74 0.0247% Market price IOR 2.62 0.4000 1.05 0.0095% Market price Mecon 0.06 2.4000 0.14 0.0013% Market price Unlisted companies Hidroelectrica 89.38 36.5748 36.5748 29.5497% Fair value CN Aeroporturi Bucuresti 2.88 219.9591 219.9591 5.7172% Fair value Enel Distributie Banat 9.22 67.6742 67.6742 5.6406% Fair value Enel Distributie Muntenia 3.26 139.8478 139.8478 4.1165% Fair value Engie Romania 2.39 186.5982 186.5982 4.0325% Fair value Enel Distributie Dobrogea 6.75 59.4095 59.4095 3.6266% Fair value Electrica Distributie 7.80 32.5678 32.5678 2.2951% Fair value Muntenia Nord Electrica Distributie 9.33 23.8333 23.8333 2.0095% Fair value Transilvania Sud Electrica Distributie 8.17 26.3962 26.3962 1.9489% Fair value Transilvania Nord CN Administratia Porturilor 2.66 79.4920 79.4920 1.9100% Fair value Maritime Salrom 2.01 88.4492 88.4492 1.6038% Fair value Electrica Furnizare 1.37 109.4838 109.4838 1.3523% Fair value Enel Energie 1.68 45.5952 45.5952 0.6924% Fair value Enel Energie Muntenia 0.44 144.1266 144.1266 0.5785% Fair value Complexul Energetic Oltenia 27.39 2.2944 2.2944 0.5680% Fair value Posta Romana 14.87 3.9468 3.9468 0.5306% Fair value Zirom 5.29 4.4039 4.4039 0.2104% Fair value CN Administratia Canalelor 0.20 81.0905 81.0905 0.1489% Fair value Navigabile CN Administratia Porturilor 0.03 109.2594 109.2594 0.0272% Fair value Dunarii Fluviale Aeroportul International 0.03 81.6466 81.6466 0.0236% Fair value Timisoara - Traian Vuia Comsig 0.08 26.0118 26.0118 0.0178% Fair value Plafar 0.13 14.3993 14.3993 0.0173% Fair value
Aeroportul International 0.02 67.9649 67.9649 0.0142% Fair value Mihail Kogalniceanu CN Administratia Porturilor 0.06 20.8520 20.8520 0.0107% Fair value Dunarii Maritime Cetatea 0.35 0.9855 0.9855 0.0032% Fair value Summary Listed companies 2225.16 20.1141% Unlisted companies 7372.78 66.6454% Net cash and receivables 1464.76 13.2405% Total 11062.70 100% Source: Intercapital Invest calculations based on FP’s reports
Page 6 Fondul Proprietatea • November 2016
In comparison to the detailed structure of investments presented by the Fund at the end of H1 2016, the stake in Banca Transilvania increased to 8.62 mln shares, from 5.67 mln shares, based on estimates made from the last monthly report. We have adjusted the stake in OMV Petrom with the number of shares seld in the offer while the net cash and receivables position was calculated based on our estimates of the Fund’s net proceedings and receivables from the SPO. Therefore, the net proceedings and receivables position increased to 1464.76 mln RON. Fondul Proprietatea also holds positions in other seven companies that were evaluated at zero by the Fund, seeing as these companies are either in insolvency, bankruptcy or reorganization. The seven stakes are not presented as their weight in NAV is null.
According to the Investment Policy Statement, FP’s investment objective is to maximize returns to shareholders and to increase the NAV through investments in local equities. However, the Fund made several disinvestments in the last years, in order to cover costs from buy-backs programs and returns of capital. The Manager announced that no more investments will be made until the discount to NAV is reduced. Currently, the weight of listed companies in NAV is 20.11%, unlisted companies represent 66.65% and net cash and receivables weigh 13.24%. Consequently, the listed companies reached the minimum required weight of 20%, as stated in the article of incorporation and current regulations.
NAV strucure based on assets 100% 3.41% 4.94% 2.63% 1.99% 2.04% 13.24% 90%
80%
70%
42.46%
48.94% 59.74% 60% 54.18% 63.26% Net cash and receivables 50%
66.65% Unlisted companies 40% Listed companies 30%
20% 54.91%
49.07% 40.88%
10% 38.22% 33.33%
0% 20.11% 2011 2012 2013 2014 2015 Curent
Source: Intercapital Invest calculations based on FP’s reports
The weight of listed companies started decreasing in late 2013, as a result of the disinvestment policy. Moreover, the lack of new listings, such as those of Hidroelectrica, CE Oltenia and Posta Romana, contributed to the low weight of listed companies in the Fund’s portfolio. Just this year, the Fund sold its entire stakes in Romgaz, E.ON Distributie Romania and E.ON Energie Romania. FP sold its stake in Romgaz through an accelerated book build offering and the transaction reached 541.03 mln RON. In the case of E.ON companies, the buyer and the value of the transactions are unknown, as the Fund has undertaken confidentiality obligations. According to the 2015 annual report, Fondul Proprietatea held stakes of 56.7 mln shares in E.ON Distributie, valued at 510 mln RON, and 126.5 mln shares in E.ON Energie, valued at 126.5 mln
Page 7 Fondul Proprietatea • November 2016
RON. At a 10% discount, which is usually used in these types of transactions, the value of the deal would be 572.85 mln RON. Fondul Proprietatea also sold part of its stake in OMV Petrom, through a secondary public offer. The Fund sold 6.40% of OMV Petrom’s share capital, just enough to keep the weight of listed companies above 20%, as required. The transaction settled at the price of 0.21 RON/share, representing the biggest discount to the market price offered by Fondul Proprietatea in its sales until know. The SPO was the biggest transaction up to date, totaling 761.68 mln RON. The major transactions run by the Fund are presented in the following table.
Premium/ Value of Discount to Stake after Company Type of sale transaction Stake sold Date the market the sale (mln RON) price accelerated private OMV Petrom 246.67 -12.20% 1.10% 18.99% May 2013 placement accelerated private Transgaz 303.51 -4.40% 15.00% 0% December 2013 placement accelerated private Romgaz 644.60 -5.90% 5.00% 10.01% June 2014 placement accelerated private Transelectrica 212.75 -8.00% 13.49% 0% July 2014 placement accelerated private Conpet 99.79 -8.00% 23.60% 6.10% November 2014 placement accelerated private Romgaz 456.00 -6.40% 4.15% 5.85% October 2015 placement accelerated private Romgaz 541.03 -7.90% 5.85% 0% April 2016 placement E.ON Distributie direct sale *459.00 - 18.35% 0% June 2016 Romania E.ON Energie direct sale *113.85 - 13.40% 0% June 2016 Romania
OMV Petrom secondary public offer 761.68 -18.92% 6.40% 12.59% September 2016
Source: Intercapital Invest calculations based on FP’s reports
Besides the conducted sales, Fondul Proprietatea has held discussions in two rounds with Electrica, regarding the sale of the stakes held in the distribution and supplying subsidiaries of Electrica. The first round of negotiations stopped in April of 2015 and the second one in March 2016, both ending without success because of disagreements on the price. Electrica offered 790 mln RON, including dividends in the sum of 106 mln RON the Fund was bound to receive. On the other side, the Fund wanted to receive 805 mln RON for the stakes, and it was willing to give up 36 mln RON from the dividends it was supposed to receive.
The two companies announced their intentions to resume negotiations, but only after Electrica appointed a new CEO, after Mr. Ion Rosca was dismissed on 11th of March 2016. Mr. Catalin Stancu was appointed as the new CEO on 20th of September, taking over the position from Ms. Iuliana Andronache, who acted as the interim CEO. We expect that this time a deal will be made, seeing as Electrica holds a strong position in cash and there aren’t other
Page 8 Fondul Proprietatea • November 2016
investment opportunities at this time. In our view, the Fund will manage to obtain at least the sum requested in the last round of negotiations, taking into account that as a result of the OMV Petrom SPO, Fondul Proprietatea is no longer under pressure regarding the cash needed to run buy-back programs and returns of capital.
Fondul Proprietatea is also in discussions with the majority owners of Engie and Enel regarding stakes held in the Romanian subsidiaries, according to Fund’s representatives, but further details are unknown at the time being.
Even after the sales conducted of oil&gas and utility companies, the Fund’s portfolio remains concentrated in these sectors, with a weight of 72.55% of the NAV. Other important sectors in Fondul Proprietatea’s portfolio are infrastructure and banking, with weights of 8.09% and 2.70% of NAV.
The largest holdings are in Hidroelectrica, OMV Petrom, CN Aeroporturi Bucuresti, Enel Distributie Banat and Enel Distributie Muntenia. These five companies sum up 59.53% of the net assets value. OMV Petrom (14.51% of NAV) and BRD-SG (2.52% of NAV) are the only listed companies from the top 10 holdings, which make up 74.01% of the NAV.
NAV structure by sectors NAV structure by companies
13.24%
27.23% 6.12% 31.34% 29.55%
8.09%
14.92% 13.24%
5.64% 14.51%
26.29% 5.72%
4.12%
Hidroelectrica OMV Petrom Electricity: production Electric and gas utilitites Aeroporturi Buc Enel Distr Banat Oil&gas Infrastructure Enel Distr Muntenia Net cash and receivables Others Net cash and receivables Others
Source: Intercapital Invest
Page 9 Fondul Proprietatea • November 2016
Fair Value NAV valuation
The fair value was determined based on the detailed structure of investments as of 30th of June, adjusted with the monthly report regarding the September NAV. In addition, we took into account the SPO conducted at OMV Petrom.
We have used the SOTP method in order to determine the fair value of NAV. Listed companies were valued at market, to which we applied a discount between 5% and 20%, determined on a scoring system based on liquidity, management, transparency and type of ownership (state owned/private). The only exception is Alcom, whose shares last traded on over a year ago, where we applied a 30% discount to the Fund’s valuation. For the unlisted companies, we’ve used Relative Value for major holdings, to which we applied a 15% discount, except Hidroelectrica, where we applied a 5% discount. For companies with small weightings in the NAV, or where Relative Value had little significance, we used Fondul Proprietatea’s latest valuations with a 20% discount. In the end, a 15% discount was applied to the fair value NAV, arriving at a target price of 0.9106 RON/share.
In our view, the main drivers for FP shares are new listings, buy-back programs and returns of capital and the promotion of the Bucharest Stock Exchange in the emerging markets list by FTSE Russell. From the new listings, Hidroelectrica seems to be the closest, with a possible double IPO on the Bucharest and London exchanges in the beginning of 2017, according to the company’s CFO. Hidroelectrica has a strong cash position and we see some chances of a special dividend distribution before the IPO, which could enhance Fondul Proprietatea’s earnings from dividends. We are reserved regarding other IPOs for the rest of the unlisted companies in the near-term.
Company Stake offered Status Estimated date
Hidroelectrica 15% Approved in GSM H1 2017
Suspended, company in CE Oltenia 12% - 15.3% Approved in GSM reorganising procedure
Aeroporturi Bucuresti n/a No decision n/a
Administratia n/a No decision n/a Porturilor Maritime
Salrom n/a No decision n/a
Posta Romana n/a No decision n/a
Source: Fondul Proprietatea
The main risks we see for Fondul Proprietatea are the ones regarding the delay of new listings and the new legislation for oil&gas and energy companies. A new legislation was announced in the beggining of the year, however there are no details released at this time regarding the new regulations
Page 10 Fondul Proprietatea • November 2016
Listed companies
We have used prices as of 31st of October in order to determine the fair value of listed companies, to which a discount between 5% and 30% was applied, mainly determined based on liquidity. As such, we determined a fair value of 2102.30 mln RON for the listed portfolio, compared to 2225.16 mln RON determined based on FP’s methods.
Fair value Fund’s stake (mln FP’s value Valuation Discount Company Price/share Intercapital shares) (mln RON) method used (mln RON)
OMV Petrom 7117.5481 0.2255 1605.01 Market price 5% 1524.76
BRD-SG 25.3635 10.9800 278.49 Market price 5% 264.57
Nuclearelectrica 27.4084 4.9200 134.85 Market price 5% 128.11
Alro Slatina 72.8847 1.2100 88.19 Market price 10% 79.37
Conpet 0.5244 80.0000 41.95 Market price 5% 39.85
Romaero 1.3117 20.0000 26.23 Market price 15% 22.30
Primcom 1.2750 10.1000 12.88 Market price 15% 10.95
Banca Transilvania 8.6221 2.3150 19.96 Market price 5% 18.96
Oil Terminal 36.7960 0.0962 3.54 Market price 15% 3.01
Palace 5.8325 0.4690 2.74 Market price 15% 2.33
Alcom 0.0892 113.5420 10.13 FP 30% 7.09
Mecon 0.0601 2.4000 0.14 Market price 15% 0.12
IOR 2.6223 0.4000 1.05 Market price 15% 0.89
Total 2225.16 2102.30
Unlisted companies
We have valuated the top holdings in unlisted companies using Relative Value based on the median of European peers. In order to account for the higher indicators at which European peers are trading in comparison to Romanian companies, we applied a 20% discount to the median. We applied a further discount of 5% for Hidroelectrica and 15% for other companies to the relative value determined, in order to arrive at the final fair value.
For companies with small weightings in the NAV or where relative value had little significance, we determined the fair value by applying a 20% discount to the latest Fund’s valuations. We arrived at a fair value for the unlisted portfolio of 6833.70 mln RON, compared to 7372.78 mln RON as valued by Fondul Proprietatea in the latest report.
Page 11 Fondul Proprietatea • November 2016
Fair value FP’s value Valuation Relative Value Discount Company Intercapital (mln (mln RON) method (mln RON) used RON) Hidroelectrica 3268.99 relative value 3290.93 5.00% 3126.38
Aeroporturi Bucuresti 632.48 relative value 933.69 15.00% 793.64
Enel Distributie Banat 624.00 relative value 504.99 15.00% 429.24
Enel Distributie Muntenia 455.40 relative value 401.61 15.00% 341.37
Engie Romania 446.10 relative value 392.09 15.00% 333.28
Enel Distributie Dobrogea 401.20 relative value 340.31 15.00% 289.26 Electrica Distributie 253.90 relative value 320.86 15.00% 272.73 Muntenia Nord Electrica Distributie 222.30 relative value 302.02 15.00% 256.72 Transilvania Sud Electrica Distributie 215.60 relative value 296.16 15.00% 251.73 Transilvania Nord Administratia Porturilor 211.30 relative value 227.26 15.00% 193.17 Maritime Salrom 177.42 FP’s valuation - 20.00% 141.94
Electrica Furnizare 149.60 relative value 206.74 15.00% 175.73
Enel Energie 76.60 relative value 53.97 15.00% 45.87
Enel Energie Muntenia 64.00 relative value 51.20 15.00% 43.52
CE Oltenia 62.84 FP's valuation - 20.00% 50.27
Posta Romana 58.70 FP's valuation - 20.00% 46.96
Zirom 23.27 FP's valuation - 20.00% 18.62 Administratia Canalelor 16.47 FP's valuation - 20.00% 13.18 Navigabile Administratia Porturilor 3.01 FP's valuation - 20.00% 2.41 Dunarii Fluviale Aeroportul Timisoara 2.61 FP's valuation - 20.00% 2.09
Comsig 1.97 FP's valuation - 20.00% 1.57
Plafar 1.91 FP's valuation - 20.00% 1.53
Aeroportul Constanta 1.57 FP's valuation - 20.00% 1.26 Administratia Porturilor 1.18 FP's valuation - 20.00% 0.95 Dunarii Maritime Cetatea 0.35 FP's valuation - 20.00% 0.28
BAT Service 0.00 FP's valuation - 20.00% 0.00
Gerovital Cosmetics 0.00 FP's valuation - 20.00% 0.00
Romplumb 0.00 FP's valuation - 20.00% 0.00
Salubriserv 0.00 FP's valuation - 20.00% 0.00
Simtex 0.00 FP's valuation - 20.00% 0.00 World Trade Center 0.00 FP's valuation - 20.00% 0.00 Bucuresti World Trade Hotel SA 0.00 FP's valuation - 20.00% 0.00 Total 7372.78 6833.70
Page 12 Fondul Proprietatea • November 2016
Fair value summary
We added our estimates of cash and net receivables to the fair value of listed and unlisted companies to determine a fair value NAV of 10430.69 mln RON, and a fair value NAV/share of 1.0744 RON. By applying a 15% discount to the fair value NAV/share, we have deducted a target price of 0.9106 RON/share, meaning a potential gain of 13.26% in comparison to the closing price as of 2nd of November.
Value according to Fair Value FP’s methods Listed companies 2102.30 2225.16 (mln RON) Unlisted companies 6833.70 7372.78 (mln RON) Net cash and receivables 1464.76 1464.76 (mln RON)
NAV (mln RON) 10400.76 11062.70
No of shares (mln) 9708.16 9708.16
NAV/share 1.0713 1.1395
Discount 15%
Target price 0.9106
Curent price 0.8040
Potential 13.26%
Page 13 Fondul Proprietatea • November 2016
Relative Value
Hidroelectrica was valued after P/E, P/B, EV/EBITDA and $EV/ Capacity. The EV/EBITDA and $EV/Capacity multiples have weightings of 30% and respectively 40%, while P/E and P/B are both weighted at 15% in determining the relative value of Hidroelectrica. As $EV/Capacity is denominated in USD/MW, we used the USDRON quote as of 1st of November to determine the value in RON. Utilities: production EV/Capacity P/E P/B EV/EBITDA (USD) Peers’ median 13.15 0.86 6.19 0.74 with discount Shareholders Net profit EBITDA (mln Capacity Net debt (mln equity (mln (mln RON) RON) (MW) RON) RON) Hidroelectrica 870.45 17,925.07 1,975.38 6,434.00 -1,430.43 indicators Value using Value using Value using Value using Fair value of FP’s Relative Value FP’s stake P/E P/B EV/EBITDA EV/capacitate stake Fair value 11448.20 15415.56 13661.97 20939.97 16504.14 19.94% 3290.93 Hidroelectrica
We valued the rest of the companies after P/E, P/B and EV/EBITDA, each with equal weightings.
Utilities: distribution P/E P/B EV/EBITDA Peers’ median with 10.32 0.76 4.86 discount Shareholders Net profit (mln EBITDA (mln equity (mln Net debt (mln RON) RON) RON) RON) Enel Distribuţie 157.89 2,548.68 315.82 -1,178.34 Banat Enel Distribuţie 237.94 4,311.43 451.34 -2,112.76 Muntenia Enel Distribuţie 114.80 1,656.28 252.98 -563.96 Dobrogea Electrica Distribuţie 153.16 1,613.93 289.39 -162.56 Muntenia Nord Electrica Distribuţie 152.57 1,232.31 318.11 -61.94 Transilvania Sud
Electrica Distribuţie 158.82 1,235.81 313.54 64.80 Transilvania Nord Value using EV/ Fair value of FP’s Value using P/E Value using P/B Relative Value FP’s stake EBITDA stake Valoare justa Enel 1629.47 1937.00 2714.48 2093.65 24.12% 504.99 Distribuţie Banat Valoare justa Enel 2455.57 3276.68 4308.09 3346.78 12.00% 401.61 Distribuţie Muntenia Valoare justa Enel 1184.75 1258.77 1794.45 1412.66 24.09% 340.31 Distribuţie Dobrogea Valoare justa Electrica Distribuţie 1580.61 1226.58 1570.15 1459.11 21.99% 320.86 Muntenia Nord Valoare justa Electrica Distribuţie 1574.51 936.56 1609.24 1373.43 21.99% 302.02 Transilvania Sud Valoare justa Electrica Distribuţie 1639.03 939.22 1460.28 1346.18 22.00% 296.16 Transilvania Nord
Page 14 Fondul Proprietatea • November 2016
Utilities: supply
P/E P/B EV/EBITDA
Mediana peers cu 10.29 0.66 6.20 discount Shareholders Net profit (mln EBITDA (mln equity (mln Net debt (mln RON) RON) RON) RON) Electrica Furnizare 131.14 302.42 150.51 -337.91
Enel Energie 19.61 515.90 46.69 -517.67 Enel Energie 24.91 482.03 27.55 -534.95 Muntenia
Engie România 247.99 4,134.73 569.08 -1,004.23
Value using EV/ Fair value of FP’s Value using P/E Value using P/B Relative Value FP’s stake EBITDA stake Valoare justa 1349.17 199.60 1270.48 939.75 22.00% 206.74 Electrica Furnizare Valoare justa Enel 201.76 340.49 806.94 449.73 12.00% 53.97 Energie Valoare justa Enel 256.32 318.14 705.64 426.70 12.00% 51.20 Energie Muntenia Valoare justa Engie 2551.35 2728.92 4530.27 3270.18 11.99% 392.09 România
Airports
P/E P/B EV/EBITDA
Mediana peers cu 14.83 1.78 8.57 discount
Net profit (mln Shareholders EBITDA (mln Net debt (mln
RON) equity (mln RON) RON) RON) Aeroporturi 210.65 4,176.92 367.15 -283.57 Bucuresti Value using EV/ Fair value of FP’s Value using P/E Value using P/B Relative Value FP’s stake EBITDA stake Valoare justa Aeroporturi 3124.42 7451.62 3429.33 4668.46 20.00% 933.69 Bucuresti
Maritime infrastructure
P/E P/B EV/EBITDA
Mediana peers cu 15.54 1.17 6.87 discount
Net profit (mln Shareholders EBITDA (mln Net debt (mln
RON) equity (mln RON) RON) RON) Administratia Porturilor 97.41 493.64 150.06 -288.75 Maritime Value using EV/ Fair value of FP’s Value using P/E Value using P/B Relative Value FP’s stake EBITDA stake
Valoare justa Adm Porturilor 1514.07 576.57 1319.93 1136.86 19.99% 227.26 Maritime
Page 15 Fondul Proprietatea • November 2016
Peers
Utilities: Production EV/ EV/ Company Country P/E P/B Capacity EBITDA (USD) Akenerji Turkey - 0.44 11.54 0.72 CEZ Czech 12.90 0.95 6.35 0.81 Endesa Spain 19.96 2.21 8.00 1.04 Enel Italy 17.50 1.16 7.03 1.14 Energie Baden Wurttemberg Germany - 2.81 7.48 0.85 Iberdrola Spain 15.38 1.10 9.34 1.57 RusHydro Russia 8.08 0.49 6.41 n/a Verbund Austria 30.48 1.05 10.05 0.93 Median 16.44 1.08 7.74 0.93 Discounted Median 13.15 0.86 6.19 0.74 Utilities: Distribution EV/ Company Country P/E P/B EBITDA Acea Italy 11.22 1.61 6.53 CEZ Czech 12.90 0.95 6.35 E.ON AG Germany - 1.33 2.79 Energa Poland 18.66 0.40 5.36 Engie France - 0.79 6.08 Median 12.90 0.95 6.08 Discounted Median 10.32 0.76 4.86 Utilities: Supply EV/ Company Country P/E P/B EBITDA EDP Portugal 12.86 1.26 8.46 ENEA SA Poland - 0.39 10.70 Enel Italy 17.50 1.16 7.03 PGE Poland 7.66 0.49 4.30 Median 12.86 0.83 7.75 Discounted Median 10.29 0.66 6.20 Airports EV/ Company Country P/E P/B EBITDA Aeroports de Paris France 23.07 2.23 11.13 Fraport Germany 18.54 1.48 10.14 TAV Airports Turkey 9.79 2.05 4.98 Vienna Airport Austria 11.64 1.70 8.09 Flughafen Zurich Switzerland 23.08 2.68 10.71 Toscana Aeroporti Italy 32.85 2.47 13.76 Aena Spain 17.64 4.25 12.52 Median 18.54 2.23 10.71 Discounted Median 14.83 1.78 8.57 Maritime infrastructure EV/ Company Country P/E P/B EBITDA Novorossiysk Commercial Sea Russia 56.91 3.73 8.59 Port Thessaloniki Port Authority S.A. Greece 13.73 1.46 4.78 GRC Luka Ploce Croatia 49.53 0.57 35.01 Piraeus Port Authority Greece 132.73 1.81 23.59 Hamburger Hafen Germany 19.43 2.24 5.41 Eurokai Germany 15.50 1.45 9.06 Luka Koper Slovenia 8.85 0.99 5.53 Median 19.43 1.46 8.59 Discounted Median 15.54 1.17 6.87 Source: Bloomberg
Page 16 Fondul Proprietatea • November 2016
Financial indicators
Administratia Hidroelectrica TTM Aeroporturi Bucuresti (mln RON) Porturilor Maritime (6M ‘16) TTM (6M’ 16) FY ‘15 Sales 2947.55 786.61 285.57
EBIT 1,141.79 252.45 114.02
EBITDA 1,975.38 367.15 150.06
Net income 870.45 210.65 97.41
Total assets 19,771.43 4,944.81 1,729.87
Shareholders equity 17,925.07 4,176.92 493.64
Capacity (MW) 6,434.00 / /
Source: companies
Utilities: distribution Enel Distributie Enel Distributie Electrica Distributie Electrica Distributie Electrica Distributie Enel Distributie (mln RON) Muntenia Dobrogea Muntenia Nord Transilvania Sud Transilvania Nord Banat FY ‘15 FY ‘15 FY ‘15 FY ‘15 FY ‘15 FY ‘15 Sales 602.57 932.46 506.16 764.80 720.64 675.41
EBIT 181.49 256.25 136.34 182.90 178.12 186.61
EBITDA 315.82 451.34 252.98 289.39 318.11 313.54
Net income 157.89 237.94 114.80 153.16 152.57 158.82
Total assets 3,178.37 5,919.33 2,297.76 2,438.09 2,186.22 2,061.80
Shareholders 2,548.68 4,311.43 1,656.28 1,613.93 1,232.31 1,235.81 equity Source: companies
Utilities: supply
Electrica Furnizare Enel Energie Muntenia Engie Romania TTM (mln RON) Enel Energie FY ‘15 FY ‘15 FY ‘15 (6M ‘16)
Sales 4,177.34 1,798.27 1,724.89 4,328.88
EBIT 143.08 42.87 25.26 329.29
EBITDA 150.51 46.69 27.55 569.08
Net income 131.14 19.61 24.91 247.99
Total assets 1,144.02 906.67 842.51 5,257.28
Shareholders equity 302.42 515.90 482.03 4,134.73
Source: companies
Page 17 Fondul Proprietatea • November 2016
About Fondul Proprietatea
Fondul Proprietatea is a joint-stock company operating as a closed-end fund. The Fund was founded by the Romanian Government in 2005, in order to compensate claimants who lost properties under the communist regime, by allocating them shares in the Fund. In September 2010 Franklyn Templeton International Services was appointed as the Fund’s Manager, following a public auction organized by the Romanian State. The Manager is supervised by the Board of Nominees, formed by five members elected in the General Shareholders Meetings.
Listed on the regulated market of the Bucharest Stock Exchange in 2011, Fondul Proprietatea is one of the largest companies by market cap. In April 2015 the Fund was listed on the London Stock Excahnge, by means of global depositary receipts. The GDRs are limited to at most one third of the share capital of the Fund, with each one representing 50 shares.
The Fund is managed by Mr. Greg Konieczny, together with Mr. Johan Meyer, who was appointed co-manager recently, on the 1st of November.
Fondul Proprietatea has a NAV of 11.36 bn RON. The shareholders, as of 13th of October 2016, are The Bank of New York Mellon (the depositary Bank for GDRs) with 33.33% of the share capital, foreign institutional investors (21.21%), retail investors from Romania (17.68%), Romanian institutional investors (12.98%), foreign private investors (3.17%) and the Ministry of Public Finance (3.37%). Fondul Proprietatea owns 8.26% in own shares.
Page 18
INTERCAPITAL INVEST SA FULL-SERVICE SECURITIES BROKERAGE
33 Aviatorilor Bd. 1st Floor. Sector 1. Bucharest + 4021 222 8731. + 4021 222 8744 www.intercapital.ro. [email protected]
Report analyst: Ronnie Khreis
Report Target price Rating Date
0.9106 RON/ 03.11.2016, hour Fondul Proprietatea Buy share 18:02
Rating history Market Date Analyst Target price 1 year rating (12m) price
FP, main driver 04.11.2016 Ronnie Khreis 0.9106 0.8040 Buy are new listings
Electrica, 2 Daniela years since the 17.06.2016 13.90 12.80 Accumulate Ropota IPO
Conpet, difficult market 13.06.2016 Ronnie Khreis 66.15 71.60 Reduce conditions
Antibiotice Iasi, under the Daniela 04.01.2016 0.59 0.53 Accumulate influence of the Ropota clawback tax
Compa Sibiu, exceptional 23.12.2015 Ronnie Khreis 0.88 0.70 Buy performances
Transelectrica, waiting for Daniela 20.11.2015 30.93 28.40 Accumulate great Ropota investments
6 Ratings structure (last 12 months)
5
4
3
2
1
0
Page 19
The present report has been drawn up by Intercapital Invest SA (http://www.intercapital.ro), a financial investment services company, member within the Bucharest Stock Exchange. The people involved within the process of accomplishing the present report are Intercapital Invest SA employees. The present report has been drawn up for the clients of SSIF Intercapital Invest SA and the present report shall be for information purposes.
Any and all recommendations provided by SSIF Intercapital Invest SA have an independent character, being based upon data / information relating to the company, which are available to the large audience. Any and all opinions, prognoses and estimates within the present report show our views and opinions upon the drawing up of the present report. The information within the present report states certain opinions on a given category of moveable assets. The final decision for the latter’s purchase or sale shall be independently taken by each and every single investor, based upon a large number of opinions and analyses to this end. Intercapital Invest and the latter’s employees may hold moveable assets being described within the present report and / or they may have contractual relations with the issuers presented within the report. Investors are hereby notified on the fact that any strategy, chart, methodology or sample are rather estimation forms and that the same may not guarantee a certain profit. Investing in moveable assets is usually characterized by risks, including the risk of various losses, as far as investors are concerned. The facts, information, charts and data being presented herein have been got out of sources that one deems to be trustworthy, however, the accuracy and complete character of the same cannot be guaranteed. The present report has been accomplished in good faith, and Intercapital Invest alongside the authors of the present report have taken reasonable measures for the drawing up and careful checking of all information having been used, and the latter may not be held liable for any eventual errors which might occur within the report. SSIF Intercapital Invest SA and the people having drawn up the present report shall undertake no obligation whatsoever in terms of any eventual losses occurred following the use of the present information. The previous figures and performances shall not stand for a relevant indicator in terms of future results.
Intercapital Invest and the latter’s employees shall not be liable for the accuracy and quality of the information having been obtained from public sources or directly from the issuers, or for any of the effects of the issuers’ failing to communicate the information requested by the latter. The institution holding regulatory and supervisory attributions for SSIF Intercapital Invest SA is the Financial Supervisory Authority, website: http://asfromania.ro/.
In the event the present report shall include any recommendations, the latter shall refer to investments in shares for minimum 12 month periods of time, and the said recommendations may be classified under one of the following scenarios: a BUY recommendation for expectations of minimum 12 % securities appreciation, an ACCUMULATE recommendation for expectations of securities appreciation between 0 and 12%, a REDUCTION recommendation for expectations of securities depreciation of up to 10% and a SELL recommendation for expectations of securities depreciation above 10%. The information required by CNVM Regulation no. 15/2006 on the presentation of recommendations for investments in financial instruments, is available on the website of Intercapital Invest, www.intercapital.ro. The history of the reports, as published, and of the recommendations having been filed by Intercapital Invest can be found on the website www.intercapital.ro, within the Intercapital Start system.
SSIF Intercapital Invest SA. All rights reserved. The contents of the present report stand for the property of SSIF Intercapital Invest SA. One shall hereby forbid any public communication, redistribution, reproduction, broadcast, transmission, transfer of the present material, unless there is the prior written agreement on the part of SSIF Intercapital Invest SA to this end.
Page 20