Surviving in turbulent times Rating Neutral

Transcription

1 PPC S.A. Utilities / Greece Reuters/Bloomberg: DEHr.AT / PPC GA July 18, 2017 Surviving in turbulent times Rating Neutral Previous U/R The formal unbundling of ADMIE as of early June and the subsequent release of 1Q17 results gave an initial taste of the next day for PPC. The company s profitability will inevitably be affected by the restructuring of the electricity market and the enhanced competition. At the same time the process for the sale of lignite units (and potentially hydro?) will set up the tune going forward. On a supportive note, we now expect PPC to be allowed by the regulator to collect part of the past years claimed amounts for PSO charges. Our valuation exercise yields a Target Price of EUR 2.20/sh. (including PSO recovery) implying a Neutral recommendation. Yet the limited visibility on the stock maintains risks elevated. Following the formal closure of ADMIE sale in June, PPC will deconsolidate the subsidiary from its accounts as of 1/1/2017. Recall that in 2016 ADMIE provided PPC an EBITDA of EUR 152m. PPC received EUR 710m in cash, while it returned in kind to its shareholders 1 share of ADMIE Holdings for each existing share of PPC at a value of EUR 2.12/sh. ADMIE Holdings controls 51% of ADMIE and is listed in the ATHEX currently trading at EUR 2.20/sh. PSO recovery: A more than welcome push The market regulator is expected to release within the MoU provisions its decision of the recovery of Public Service Obligation (PSO) expenses by PPC. PPC is claiming an amount of EUR 735m for the period We model in that eventually PPC will be entitled to collect about 50% of this amount in the period up to 2022 representing EUR 1.20/sh to our valuation. Unit sales: How this could play out Based on the updated MoU, PPC with the support of EU DG Comp must put out to market test tender 40% of its lignite capacity by November this year. Reportedly PPC is proposing the sale of the two units in Amuntaio, one in Meliti (the newest of its portfolio) and the license to construct a new lignite unit in Meliti. The official list of units to be sold remains to be determined after consultation with EU authorities. We believe that PPC s strategy based on the circulated by the press bundle that requires significant development capex, aims to position the company competitively for the day after, rather than raise immediate cash. In any case the market appetite during the market test in November will determine the outcome of the process and weather hydro units will eventually be added to the bundle to sweeten the deal. Target Price ( /sh) 2.20 Previous U/R Current Share Price* ( /sh) 2.30 *17 /07/ 2017 Stock Data Market Cap (EUR m) Free Float 49% EV (EUR m) 4,425 Num. of Shares (m) Performance 1m 3m 12m Absolute (%) ASE General (Abs) Day avg. no traded shr (k-12m) 310 Price high-12 m (EUR) Price low-12m (EUR) Estimates Update Following the release of 1Q17 results we adjust our estimates, revising lower by 20% our FY2017 EBITDA mainly on the back of higher expenses for fuel and energy purchases. Specifically we are looking for revenues of EUR 4.9bn (in line with guidance), EBITDA of EUR 612m (mid guidance range) and bottom line losses of EUR 136m. Bottom line is expected to remain negative in 2018 (losses of EUR 23.2m) as market share losses come at a faster rate than cost base restructuring, before posting marginal profitability in Liquidity under the scope PPC might have taken a significant breather form the cash proceed for ADMIE (ceur 700m) and the new EUR 200m loan from the Greek banks in 1H17 but debt maturities of EUR 650m until end-2018 and negative operating FCF (including EUR 310m taxes from ADMIE transaction) are expected to leave the company at a marginally positive cash position at the end of For 2019 (EUR 1.2bn to GR Banks and EUR 500m notes) our base case calls for a refinancing agreement with the Greek banks that will also include the notes repayment. Valuation-Neutral it is (assuming PSO collection) Based on our revised estimates our 50/50 weighted DCF and Peer multiples valuation exercise yield a Target Price of EUR 2.20/sh, implying a Neutral recommendation at current market prices. On current levels PPC is trading at EV/EBITDA of 7.2x-6.4x, in line with its major EU peers and above its 5-year trading average of 5.7x. EUR m E* 2018F* 2019F* Revenues 5, , , , , EBITDA , Net Income (102.4) 67.2 (136.3) (23.2) 6.6 EPS (0.44) 0.29 (0.59) (0.10) 0.03 P/E n.m. 7.9 x n.m. n.m x EV/EBITDA 7.0 x 4.8 x 7.2 x 6.4 x 5.9 x Net Debt/EBITDA 5.9 x 4.1 x 6.3 x 5.7 x 5.2 x *We deconsolidate ADMIE as of Jan Source: AXIA Research Web: Please refer to the last page for disclosures and analyst certification PPC is the leading producer and supplier of electricity in Greece with c7.0 million customers, representing 88% of the Greek electricity market. PPC s current generation portfolio consists of conventional thermal and hydroelectric power plants, as well as RES units, accounting for c67% of the total installed capacity in the country. Shareholders: Greek State 51.12%, Silchester International 13.8% Argyrios Gkonis - Analyst Argyrios.gkonis@axiavg.com Constantinos Zouzoulas Head of Research Constantinos.zouzoulas@axiavg.com AXIA Research Page 1

2 PSO recovery: A more than welcome push PPC has filled to the regulator to recover for the so called PSOs an amount of EUR 735m in total. This amount will account for the additional expense undertaken by the company during to provide electricity to the non-interconnected islands as well as social tariff plan. Currently the regulator is tracking the exact amount to be recovered, while according to the MoU Greece has signed with its international creditors, the recovery of the final amount has to take place by 2020this should be made in a time horizon up to Table 1. PPC s PSO charges EUR m Claimed cost Charged Difference Total Source: PPC The Greek State has setup the Public Service Obligation charge in all electricity accounts in order to compensate the electricity producer (PPC) on the islands that are not interconnected with the mainland for the generation of electricity exclusively by oil fired units, while charging the same rates as the mainland. Also PSO charges are used to compensate electricity suppliers for the reduced tariff charges to low income consumers. PSO s are collected through the non-energy part of the electricity accounts of all suppliers. According to the existing framework the respective amount to be recovered is ratified by the market regulator and the Ministry of Energy on a periodical basis. Currently, given the sensitivity of any hikes in electricity bills the market (PPC) has accumulated a deficit of EUR 735m for the period as there hasn t been a revision of the charge during the period. RAE has ratified the recoverable amount for and is currently looking over the claims for According to press the amount that the regulator could allow PPC to recover by 2020 could come to EUR 400m. If so, this amount is lower that the already recognized amount for This would lead us to believe that RAE could also factor in a provision for the lower cost base in 2015 onwards given the oil price decline. In any case the final decision by RAE is expected shortly and in any case within 2H17. We model that PPC will be eventually allowed to recover about 50% of its claimed amount (a total of EUR 375m) between at a gradually increasing rate, in order to push the biggest portion of the burden to the end consumers for the later years. Our 50% recovery rate also accounts for any lower revision of PSO charge due to lower oil prices. We also note that the charge will be the same across all market participants, thus not affecting supply market competition. The potential recovery of PSOs will offer a boost to PPC s top line, reaching all the way down to profitability. According to our estimates the recovery of this amount accounts for about EUR 1.20/sh to our valuation. AXIA Research Page 2

3 Unit sales: How this could play out Following the agreement of the Greek government with its creditors over the second review, the government has committed to endorse measures for the sale of 40% of PPC s lignite capacity. With PPC s lignite installed capacity at 3.9GW, we believe a unit sale would be value accretive only if accompanied by a strategic restructuring plan. Given the previous track record, we remain cautious on the timely execution of the asset sale and the ownership and execution of a restructuring plan for the company. The decision for the bundle of units that will be put to market test in November 2017 will be the driver of the process that will also determine a big part of PPC s strategy in the longer term as well as if hydro units will be eventually included to the mix to increase interest. Table 2. PPC s lignite portfolio snapshot Unit Capacity (MW) Agios Dimitrios Agios Dimitrios Agios Dimitrios Agios Dimitrios Agios Dimitrios Amuntaio Amuntaio Kardias Kardias Kardias Kardias Magalopoli Magalopoli Melitis Total 3,924 Source: ADMIE According to the latest update of the MoU between Greece and its international creditors, in the context of Greece complying with recent EU courts judgements on lignite the Economic Ministerial Cabinet has to adopt as a prior action structural measures relating to the lignite fired generation capacity of PPC. More specifically the measures shall consist of the divestment of PPC s lignite fired generation capacity to existing or new alternative suppliers and other investors. The divestment shall represent around 40% of PPC s lignite-fired generation capacity. The exact percentage will be defined with technical discussions with Commission, according to the aforementioned judgments and decisions on lignite. The divestment shall have equivalent economic characteristics to PPC's lignite-fired generation capacity, in particular in terms of efficiency and lifetime, reflecting commissioning and decommissioning of lignite-fired generation capacity. The measures will be designed and implemented following the applicable competition procedural rules. They shall be finalised through the official submission of the agreed binding commitment offer by the Hellenic Republic to the Directorate General for Competition of the European Commission (DG COMP) as key deliverable by November 2017 and implemented by June Source: EU Commission Compliance Report June 2017, AXIA Research PPC s lignite capacity currently stands at 3.9GW (14 lignite units). According to the agreed framework, the disposed portfolio should have similar characteristics with the existing and also secure lignite supply of the units (mines). Yet the exact timeframe that this will be accounted for, remains vague. In this context we note that: i) PPC is currently constructing a new 660MW lignite unit in Ptolemaida (budgeted EUR 1.4bn); ii) has an agreement with CMEC (China) for the construction of a new 450MW lignite unit in Meliti; and iii) the two units in Amuntaio (560MW total) can stay online until 2019 at their current status and need environmental upgrade of about EUR 100m (reportedly) to run after that. Recently circulated press reports note that the prevailing scenario put forward for consultation with EU DG Comp included the two units in Amuntaio, the existing unit in Meliti and the license to construct the second unit in Meliti. We estimate that the proposed bundle requires development capex/investments of about EUR bn to revamp Amuntaio units and built the new unit. Based on the opinion of DG Comp the final list will be eventually floated to market appetite in November. If the process at this stage fails to attract market interest the MoU provisions for additional structural measures, pointing to the inclusion of hydro units as well to the bundle put out for sale. Hydro units are the most lucrative assets of PPC (total available 3.1GW) as they carry very little opex and maintenance, have significant remaining lifetime and high profitability (their revenues are generated based on the cost base of thermal units). The inclusion of thermal units into the bundle would significantly raise the prospects of cash proceeds for PPC, off-taking though some of its most lucrative assets. In terms of prospective buyers for the portfolio to be sold, we look to three main categories: AXIA Research Page 3

4 1. Domestic market IPPs. The IPPs currently operate natural gas fired units and adding lignite (or even hydro) would diversify their production mix, securing a cost base for their generation portfolio that would allow them to more aggressively gain supply market share and to eventually emerge as vertical integrated players, directly competitive to PPC. 2. EU based utilities companies with experience in coal/lignite fired generation could potentially create value from streamlining the offered portfolio, entering a new market that could yield other opportunities in the sector apart from electricity. Yet we have to note that investing in coal/lignite assets remains to a large extent dependent on the views on CO2 prices in the long run. 3. Non EU companies could also be looking into entering the EU market taking also advantage of their access to financing. Recall that recently China based State Grid acquired a 24% in Greece s high voltage grid operator from PPC. Also note that CMEC holds an agreement with PPC for the common development of the second lignite unit in Meliti. The final list of lignite units to be sold have yet to be decided officially, but we believe the underlying aim will be to better position the company for the day after rather than push for immediate cash proceeds. The fact that the selection put forward will eventually require a significant amount of development capex from the investor and actually only one existing unit (Meliti I) being seamlessly operational in the longer term supports our view. In any case, in the aftermath of this process (the MoU optimistically calls to be concluded in mid-2018) PPC most likely will have a smaller footprint in the domestic market both on the generation but also on the supply side. At the same time the implementation of frameworks aligning the domestic market to the EU Target model also will drive the operations of the market participants. The ability of PPC to adjust in the new market framework with enhanced competition will be the key determinant for the company s future performance. Table 3. PPC s lignite units portfolio performance Complex Unit Capacity (MW) % Capacity Output 2015 (MWh) Output 2016 (MWh) y-o-y % of MWh 2015 % of MWh 2016 Ag Dimitrios Ag. Dimitrios I % 1,499, , % 7.72% 5.40% Ag. Dimitrios II % 1,500,996 1,083, % 7.73% 7.27% Ag. Dimitrios III % 1,680,514 1,421, % 8.65% 9.54% Ag. Dimitrios IV % 1,167,175 1,020, % 6.01% 6.85% Ag. Dimitrios V % 1,530,194 1,675, % 7.88% 11.25% Amunteo Amunteo I % 1,108, , % 5.71% 6.12% Amunteo II % 1,345, , % 6.93% 5.54% Kardia Kardia I % 1,272, , % 6.55% 6.68% Kardia II % 1,239, , % 6.39% 5.24% Kardia III % 1,666, , % 8.58% 5.84% Kardia IV % 1,589,733 1,008, % 8.19% 6.77% Megalopoli Megalopoli III % 1,321,776 1,069, % 6.81% 7.18% Megalopoli IV % 1,160,564 1,188, % 5.98% 7.98% Meliti Meliti I % 1,333,100 1,240, % 6.87% 8.33% Total Lignite 3,912 19,417,732 14,898, % Source: IPTO, PPC, AXIA Research AXIA Research Page 4

5 Estimates Update Following the release of 1Q17 figures we update our figures for PPC taking into account the underlying trends of 1Q17 performance, namely stronger demand, higher fuel and energy expenditure due to energy crisis and regulatory charges. Also we account for the partial recovery of previous year s PSO charges during though a respective tariff hike. We also update our FCF estimates based on the collection of cash from IPTO transaction. Note that (as previously) we exclude ADMIE operations as of Jan-17 while we do not account for lignite unit sale as significant parameters remains unknown. Management s guidance for FY2017 calls for revenues form energy sales of EUR 4.5bn, total revenues EUR 4.9bn and EBITDA margin of 12%-13% (implying an EBITDA range of EUR m). The figures exclude ADMIE and it does not account for any increase in PSO charges. We revise lower by 20% our FY2017 EBITDA estimate on the back of higher expenses for liquid fuel due to spiking demand in 1Q17 and increased wholesale market prices during the respective period. According to PPC s and our estimates this yielded an additional cost of about EUR 70m for the company for the period. Also we account for increased expenses related to the recent landslide in one of PPC s lignite mines. Finally we revise lower our provision estimates from EUR 350m for FY2017 to EUR 300m (guidance at EUR 270m). Our updated EBITDA estimates are lower vs. previously mainly reflecting a more constructive approach on energy purchases expenditure and additional discounts offered to clients for advanced payment of bills. Table 4. PPC Updated estimates EUR m 2017E 2018F 2019F 2020F EBITDA New Old New-vs-Old -20.1% -3.0% -7.1% -18.2% Net Income New (136.3) (23.2) 6.6 (51.7) Old (36.3) (78.4) New-vs-Old n.m. n.m % % Source: AXIA Research For 2017 we model energy revenues to stand at EUR 4.581bn, down by 8.3% y-o-y affected by market share loss (modeled to average 83.3% in 2017 vs. 91.9% in 2016) and lower effective tariff due to offered discount to retain clientele outflow. Total sales to stand at EUR 4.926bn (-6.3% y-o-y) due to increasing other income related to third parties increasing market share. On the production side we model PPC s generation in 2017 to increase by about 4.4% y-oy driven by higher lignite and natural gas utilization amid a low contribution year for hydro units. In respect of energy purchases form the system, we model for higher volumes (representing though the losses form NOME auctions), while SMP has moved 25% higher in the first 5-months of the year averaging EUR 53.4/MWh. Note that our estimates for energy purchases include a cost of EUR 290m to cover the RES account deficit and EUR 80m losses from NOME auctioned volumes. Also PPC is expected to book expenses for transmission system fees (paid to IPTO) of EUR 166m in On provisions we look for a charge of EUR 300m in 2017 vs. EUR 438.2m in 2016 (1Q17 provisions at EUR 104.8m vs m in 1Q16). AXIA Research Page 5

6 All in all, group EBITDA in 2017 is now estimated at EUR 612.9m, with the respective margin at 12.4% vs. the guidance range of 12.0%-13.0%. Our forward looking estimates in the medium term mainly reflect the reduction of the company s market share in the supply market in line with the MoU guidelines. On the expenditure side we assume limited volatility on production output and stabilization in key commodity prices (oil, natural gas and CO2) maintaining energy generation related expenditure and purchases at similar levels. On regulated expenditure (Capacity certificates, RES fee, and transmission fees) we model a decline accounting for the market share loss. Finally, we assume a de-escalation of provisions and improved WC taking into account also the agreement of the government with the institutions to a framework that will support PPC s arrears collection as well as collection of settled accounts. Looking on the longer term we estimate for PPC s supply market share to reach the targeted 50% mark in At this point we expect the market to have moved to a more mature phase, with stabilized market shares among retail suppliers. We also note that the contracts offered by alternate suppliers trying to attract PPC s clientele have a duration of guaranteed tariff of 2 years (for households). Therefore we factor in some tariff increases to be applied in the market by PPC and other suppliers. In addition, given the significant decline in the company s sales volumes and market footprint, we take a constructive approach on the expenditure side incorporating a sharp decline in employee costs (VRS) after 2019 also affecting our 2020 bottom line estimate. Table 5. PPC model assumptions and forecasts Amounts in EUR m E 2018F 2019F Total demand (y-o-y) 3.1% 0.7% 2.5% 2.0% 2.0% PPC Generation volumes (MWh) 34, , , , ,867.3 o/w lignite 19, , , , ,224.2 o/w natural gas 4, , , , ,483.4 PPC Generation market share 71.9% 62.7% 61.7% 59.2% 57.4% PPC supply market share (year avg) 96.4% 91.9% 83.3% 76.0% 66.6% Oil price ($/bbl) Total PPC Revenues 5, , , , ,209.1 Payroll Natural gas purchases Fuel oil purchases Energy purchases 1, , , , ,023.6 o/w market pool o/w Capacity Certificates o/w RES account deficit CO Transmission system charges Materials and Utilities Cash Opex , , ,317.9 Provisions Total Opex 4, , , , ,477.9 EBITDA , margin 14.4% 20.2% 12.4% 15.2% 17.4% Source: AXIA Research Looking into arrears, unpaid bills (accumulated up to end-may 2017 according to PPC data) amounted to EUR 2.231bn, marginally lower by EUR 27m since end Dec-16, while in 2016 there was a EUR 40m decline. The trend signals a clear stabilization in new arrears formation which is a positive sign, yet the rate of decline remains minimal. According to the company, total amounts of EUR 790m are currently under settlement agreements, with consumers taking advantage of the offered discounts and settlement schemes. Yet a AXIA Research Page 6

7 significant amount remains unsettled despite the accelerated power cuts pace of the recent period and the attractive settlement schemes. The settlement schemes offered by PPC in late had a 3 year tenor, so we would expect the company to manage to collect the amounts due under settlement within a 3- year period, pending though on the ability of the consumers to keep their payments. In respect of the amounts remaining to be settled the bulk of it (EUR 1.0bn) is due by low voltage customers (households and small businesses), while another about EUR 300m are due from high voltage clientele. In respect of high voltage a big amount refers to LARCO, a state owned nickel company. PPC recently reached an agreement with LARCO for the settlement of its accounts but the company s ability to meet its payments remains unclear given that it is under restructuring. Chart 1a. Arrears due evolution (EUR m) Chart 1.b Total low voltage bills not settled (EUR m) End Dec-14 End Dec-15 End Dec-16 End May-17 < > 3000 Source: PPC Liquidity under the scope Liquidity of the company has received a significant boost from the cash collections from IPTO transaction. Recall that in June this year PPC received EUR 327m from China State Grid, EUR 296m from the Greek State (through DES ADMIE), while earlier in the year it had received a cash upstream from IPTO of EUR 93m. Yet PPC is due to pay the capital gains tax on the transaction, which is estimated at about EUR 310m. The cash outflow is expected in mid During the first half of 2017, the company has also drawn additional EUR 200m from the Greek banks on a newly approved credit line which is secured against future receivables from PPC s clientele, while according to 1Q17 results has also increased its overdue payables to suppliers and third parties (by about EUR 50m). At the same time the company ytd has paid out its EUR 200m Eurobond as well as another EUR 150m of corporate debentures. In the second part of 2017 the company is scheduled to pay EUR 150m to GR banks (part of the 2014 facility) and another ceur 100m to EIB. In respect of operating FCF for 2017 we model a negative figure of about EUR 200m, as we model a negative WC of about EUR 400m following management s comments to use part of the proceeds from ADMIE to reduce its payables. Note that PPC s capex in 2017 related to the construction of the new lignite unit in Ptolemaida (about EUR 200m) is expected to be partially covered by the existing credit line for the project. All in all starting with a cash buffer of EUR 300m at the end of 2016 (including about EUR 100m of retained cash) we estimate that PPC would end up with about EUR m of cash at the end of the year. AXIA Research Page 7

8 Table 6. PPC debt maturities 2H EUR m 2H EIB GR Banks ,200 GR Banks Eurobond 500 Source: AXIA Research, The Company In 2018, apart from the EUR 310m tax outflow related to IPTO transaction, PPC is facing maturities of EUR 200m with EIB and EUR 200m of total maturities to the Greek banks (EUR 100m stemming from the 2014 facility and another EUR 100m for the 2017). Assuming again that the capex for the Ptolemaida unit will be drawn from the available credit line, we see PPC ending up with a marginal cash buffer in the region of EUR m. We have to note though that some additional liquidity could be achieved by capex slowdown, improved arrears collection or stretched WC. In 2019 the company is facing total maturities of about EUR 2.0bn, with a significant part of those expiring in 2Q16 (EUR 1.2bn balloon payment to Greek banks and EUR 500m notes). Another EUR 200m to EIB also comes up later in the year. At this point in time we see three options available to PPC for tackling its financial obligations: 1. Negotiate a new financing facility with the Greek banks that would also include the EUR 500m of notes. We believe that this is the most likely path given current environment. Recall that in 2014 PPC has negotiated and achieved a financing facility with the Greek banks of EUR 2.2bn. We believe Greek banks would be willing to extend a new facility to one of their largest debtors as long as they have a credible strategic path for the company. 2. Tap bond market and refinance the EUR 500m notes. With Greece expected to return to markets within the next year further de-risking of the economy could make market access an option for PPC. Yet we assume it would take strong statesmanship of a credible restructuring plan to achieve this. 3. Utilize cash proceeds from lignite units sale. According to the plan agreed between the government and the institutions the sale of 40% of PPC s lignite units is to be concluded by mid With the units list remaining unknown yet and sensitive timing we feel it is too early to call this a realistic option. Table 7. PPC FCF estimates EUR m EBITDA (+) Provisions Other non-cash Taxes - (310.0) (2.7) - WC (404.6) (46.1) (17.5) 3.4 Investments (600.0) (570.0) (580.0) (550.0) FCF (80.7) (10.7) Net Financials (110.2) (91.0) (86.4) (93.6) ADMIE proceeds FCFE (101.7) Source: AXIA Research AXIA Research Page 8

9 Valuation-Neutral it is Following the formal unbundling of ADMIE from PPC and the revision of our estimates that now account for the recovery of PSO charges, our valuation exercise for PPC yields a target Price of EUR 2.20/sh, implying a Neutral recommendation on the stock given current price levels. As near term visibility remains limited though, the risk for the share remains elevated. Our valuation is premised on a 50/50 weighted DCF and peer multiple approach. We have to note that if we exclude from our estimates the recovery of PSO charges, our valuation yields a target price of EUR 1.00/sh. at the same levels as our previous valuation of core PPC (ex-ipto). Regarding the potential impact of lignite units sale, given the very limited visibility and many uncertainties, for the scope of our valuation exercise we assume that any transaction will be neutral at this step. Table 8. PPC valuation table Method Value /sh Weight Peer multiples % DCF % Appraised Value ( /sh) 2.20 Current Price ( /sh) 2.30 (Downside)/Upside -4.3% Source: AXIA Research Our key consideration for our DCF exercise include: Gradual recovery of EUR 375m of PSO s up to 2022 Cost restructuring program in 2020 (VRS) Tariff hikes in (about 6.0%) Flat CO2 rights prices Oil price at USD 55/bbl, and EURUSD at 1.10 Payment of ADMIE sale capital gains tax (EUR 310m) in 2018 WACC at 10% and terminal growth at 1.5% (in line with long term demand estimates) Table 9. PPC DCF exercise EUR m EBITDA , , , , ,131.8 adj. for provisions Tax (310.0) (2.7) - (34.0) (88.2) (73.7) (100.3) (108.5) (119.5) (127.6) Capex (570.0) (580.0) (550.0) (550.0) (550.0) (550.0) (550.0) (550.0) (550.0) (550.0) WC changes (37.1) (17.5) 3.4 (2.0) (1.6) (0.9) (4.2) (0.7) FCF (10.7) NPV of FCF (9.7) Sum of NPVs 1,987.1 Terminal Value 2,283.9 EV 4,271.0 Net Debt (end 2017) 3,891.1 NAV TP ( /sh) 1.60 Num of shares Current Price 2.30 Upside/(Downside) -29% Source: AXIA Research AXIA Research Page 9

10 Table 10. PPC peer multiples valuation exercise Metric Value (EUR m) Target EV/EBITDA (x) EV (EUR m) Net Debt (EUR m) Equity Value (EUR m) CoE TP ( /sh) 2018 EBITDA x 4, , % EBITDA x 4, , % 3.06 Average 2.80 Source: AXIA Research Table 11. AXIA Research-Utilities Valuation Matrix Company Country P/E EV/EBITDA Div. Yield Net Debt/EBITDA FCF yield P/BV FY2017 FY2018 FY2019 FY2017 FY2018FY2019 FY2017 FY2018 FY2019 FY2017 FY2018 FY2019 FY2017 FY2018 FY2019 FY2017 FY2018 FY2019 Integrated Utilities (EU) E.ON SE Germany % 4.1% 4.7% % 8.3% 9.3% VERBUND AG Austria % 1.6% 2.0% % 7.4% 6.4% CEZ, a. s. Czech Republic % 5.3% 5.1% % 7.7% 8.6% EDP - Energias de PortuPortugal % 6.5% 6.8% % 10.2% 12.1% Enel SpA Italy % 5.4% 5.9% % 6.9% 8.8% Uniper SE Germany NA NA NA % 3.8% 6.4% % 7.6% 11.0% innogy SE Germany % 4.9% 5.1% % 5.7% 5.7% Fortum Oyj Finland NA NA NA % 3.5% 4.5% TAURON Polska Energi Poland % 0.3% 1.9% % -16.8% -5.1% ENGIE SA France % 5.3% 5.5% % 5.9% 7.6% BKW AG Switzerland % 2.9% 2.9% % 6.7% 6.9% RWE Aktiengesellscha Germany % 3.2% 3.7% % 12.3% 10.7% Electricité de France SFrance % 4.1% 4.0% % 6.4% 4.7% E.ON SE Germany % 4.1% 4.7% % 8.3% 9.3% PPC Greece n.m. n.m % 0.0% 0.0% n.m % 38.3% Average (ex-ppc) % 4.0% 4.5% % 5.7% 7.2% Median (ex-ppc) % 4.1% 4.7% % 7.2% 8.1% Grid-Infrastructure Operators National Grid plc UK % 4.9% 5.1% % -1.4% Pennon Group Plc UK % 4.7% 5.1% % 3.5% 4.3% Severn Trent Plc UK % 3.9% 4.1% % 2.4% 2.6% United Utilities GroupUK % 4.5% 4.7% % 2.5% 5.0% Veolia EnvironnementFrance % 4.6% 5.0% % 7.2% 7.7% SUEZ SA France % 4.2% 4.6% % 8.1% 6.5% Fluxys Belgium SA Belgium NA NA NA NA NA NA NA NA NA NA NA NA NA NA A2A S.p.A. Italy % 4.5% 5.0% % 7.2% 7.7% Snam S.p.A. Italy % 5.7% 5.9% % 4.7% 4.9% TERNA Italy % 4.6% 4.8% % 3.8% 4.2% Enagás, S.A. Spain % 6.4% 6.7% % 10.7% 10.5% Redes Spain % 5.3% 5.7% % 5.2% 5.7% REN Portugal % 6.2% 6.3% % 12.2% 14.1% Average % 5.0% 5.2% % 5.5% 6.7% Median % 4.7% 5.1% % 4.9% 5.7% Source: AXIA Research, Capital IQ AXIA Research Page 10

11 1Q2017 performance review PPC released as expected a particularly weak set of results for 1Q17 coming in line with our estimates. Operations were mostly impacted by rising opex for fuel and energy purchases while revenues also declined. Bottom line losses for the group in 1Q17 stood at EUR 67.5m (losses of EUR 80.4m if ADMIE is excluded). Group revenues stood at EUR 1.369bn declining by 3.1% y-o-y affected by declining market share (87.7% in Mar 17 vs. 92.8% in Mar 16) and lower effective prices due to the offered discounts, while the hike in electricity demand in the country (+6.9% y-o-y in 1Q17) kept volume sales stable. On the generation side PPC s output volumes accounted for 59.3% of the total generation in 1Q17 vs. 53.2% in 1Q16. Lignite fired generation was up 19.4% y-o-y and natural gas output more than doubled in 1Q17 (+105.3% y-o-y). It is worth noting that due to severe weather conditions and natural gas shortages in the Greek system PPC had to operate for certain time period two of its natural gas fired units (Komotini and Lavrio) with diesel oil, yielding an additional burden of about EUR 70m for the company. An expense of EUR 104.9m from the new charge of electricity suppliers in order to cover the deficit of the Special Account for Renewables was booked in 1Q17. Also sale of energy through NOME auctions yielded losses of EUR 21.8m in the quarter for the company. On a positive tone, provisions for bad debt declined by EUR 58.5m y-o-y in 1Q17 to stand at EUR 104.8m. Given the above group EBITDA shrank to EUR 123.6m (-64.2% y-o-y). Losses before taxes settled at EUR 88.1m in 1Q17 vs. gains of EUR 122.3m in 1Q16 (the group realized some saving in interest costs). On continued operations (excluding ADMIE) revenues stood at EUR 1.357m (-2.8% y-o-y), with EBITDA declining to EUR 81.4m (-72% y-o-y) as expenditure savings was more than counterbalanced from transmission system fees expense. Losses after taxes amounted to EUR 106.9m vs. profits of EUR 91.4m in 1Q16. Capex for the quarter at EUR 94.2m Group net debt at the end of 1Q17 (including ADMIE) was EUR 4.37bn, standing EUR 150m lower from the beginning of the year. The decline in net debt is mostly attributed to increased overdue payables to other creditors (WC inflow of about EUR 50-60m). Table 12a. PPC 1Q17 Key figures including ADMIE EUR m 1Q16 1Q17 y-o-y 1Q17 AXIA Revenues 1, , % 1,360.8 Cash opex , % 1,139.2 Provisions % 90.0 Total Opex 1, , % 1,229.2 EBITDA % EBITDA margin 24.4% 9.0% 9.7% Depr. and interest % EBT (88.1) (90.9) Net Income/(Loss) 85.6 (67.5) (64.5) Source: The Company, AXIA Research Table 12b. PPC 1Q17 Key figures continued operations (ex ADMIE) EUR m 1Q16 1Q17 y-o-y 1Q17 AXIA Revenues 1, , % 1,345.8 Cash opex , % 1,162.2 Provisions % 90.0 Total Opex 1, , % 1,252.2 EBITDA % 93.6 EBITDA margin 20.8% 6.0% 7.0% Depr. and interest % EBT 91.4 (106.9) (100.4) Net Income/(Loss) 61.6 (80.4) (71.3) AXIA Research Page 11

12 Appendix-Lignite production in the Greek electricity system In the following pages we are looking into the dynamics of lignite fired capacity in the Greek electricity system that should ultimately determine the interest of third parties in acquiring lignite assets. 1. Lignite fleet capacity and production volume considerations The average age of PPC s lignite fleet estimated at about 30 years (lignite units in general have an average lifespan of years). The newest lignite units of PPC are Meliti I built in 2003 and Ag. Dimitrios V in mid-90 s. Additionally as emission regulations become more sensitive over time, significant investments to sustain emission levels within the allowed levels are needed, with PPC having delayed these investments due to its worsening financial position in the recent years. Given the structure of its fleet, PPC s 14 lignite units are centralized in 5 lignite centers, utilizing common control rooms and infrastructure per center making the spin-off of specific units rather difficult. In 2016 PPC s lignite output reached 14.8GWh from 19.4GWh in 2015 and 27.5GWh in , recording its lowest output levels over the recent years. Drivers to this decline have been two key factors namely cost competition from natural gas prices but also reduced available capacity form PPC s aged lignite fleet. Looking forward lignite fired capacity in the Greek system according to system stability studies compiled by the electricity (ADMIE) and natural gas (DESFA) grid operators, is expected to come down to 2.2GW from 3.9 GW currently based on the scheduled units decommissioning program in before the ramp up of the new lignite unit in Ptolemaida pushing lignite capacity to 2.9GW. Studies estimate that lignite production volumes should stay close to the 15-17GWh per year band, providing 25%-30% of the total system demand. Chart 1a. Installed capacity evolution forecasts (GW) Chart 1b. Production volumes estimates (GWh) RES Hydro Natural Gas Lignite RES Hydro Natural Gas Lignite Source: DESFA, ADMIE, AXIA Research AXIA Research Page 12

13 Table 3b. PPC s lignite units portfolio Complex Unit Capacity (MW) % Capacity Output 2015 (MWh) Output 2016 (MWh) y-o-y % of MWh 2015 % of MWh 2016 Ag Dimitrios Ag. Dimitrios I % 1,499, , % 7.72% 5.40% Ag. Dimitrios II % 1,500,996 1,083, % 7.73% 7.27% Ag. Dimitrios III % 1,680,514 1,421, % 8.65% 9.54% Ag. Dimitrios IV % 1,167,175 1,020, % 6.01% 6.85% Ag. Dimitrios V % 1,530,194 1,675, % 7.88% 11.25% Amunteo Amunteo I % 1,108, , % 5.71% 6.12% Amunteo II % 1,345, , % 6.93% 5.54% Kardia Kardia I % 1,272, , % 6.55% 6.68% Kardia II % 1,239, , % 6.39% 5.24% Kardia III % 1,666, , % 8.58% 5.84% Kardia IV % 1,589,733 1,008, % 8.19% 6.77% Megalopoli Megalopoli III % 1,321,776 1,069, % 6.81% 7.18% Megalopoli IV % 1,160,564 1,188, % 5.98% 7.98% Meliti Meliti I % 1,333,100 1,240, % 6.87% 8.33% TOTAL 3,912 19,417,732 14,898, % Source: IPTO, PPC, AXIA Research 2. Cost base considerations According to the Greek energy market regulator study, PPC s lignite production unit costs in 2015 amounted to EUR 39.9/MWh. The key items included mining expenditure (45%) and CO2 purchases (31.7%). Other items include variable O&M costs, third party fuel purchases, regulated lignite fee and start-up costs accounting for the units ignition/shut down cost. In respect of CO2 rights, in 2015 PPC s lignite units emissions amounted to 29 million tons (for a lignite generation of 19.5TWh) with the market price in 2015 averaging EUR 8.6/ton. CO2 prices in 2017 ytd are averaging about EUR 5.0/tn. On the updated lignite unit cost study for 2016, the regulator set its unit cost calculation at EUR 34.5/MWh, with the decline being almost entirely driven by CO2 prices evolution further underlying the importance of the specific cost element to lignite generations economics. Table 12. PPC s lignite generation unit costs as compiled by RAE Unit Cost Unit Cost % of total Cost Item (EUR/MWh) (EUR/MWh) % of total Mining % % Third party fuel % % Lignite fee % 2 5.8% Start-up cost % % Variable O&M % % CO2 purchases % % Total lignite cost Source: RAE, AXIA Research 3. Looking into dark spark spreads Dark spark spreads reflect the differential between SMP and unit generation cost for lignite production that operates as baseload for the system. According to our estimates spark spreads in the Greek system for lignite units have retracted significantly in following the decline in oil prices. More specifically we estimate that spreads from levels above EUR 20/MWh in 2014 have come down to ceur 13.0/MWh 2015 and reached single digits (EUR 8.0/MWh) in AXIA Research Page 13

14 Jan Mar May jul Sept Nov Jan Mar May jul Sept Nov Jan Mar May jul Sept Nov Jan Mar May jul Sept Nov Jan Mar May Jul Sept Nov Jan Mar May Jul Sept Nov Jan Mar May Public Power Corporation Company Update Apart from the cost element that we discussed above, the variation of the spread is equally importantly driven by the system marginal price levels as lignite units operate for baseload. Based on the architecture of the Greek market, the system price is set by the thermal units, namely lignite and natural gas. With natural gas prices being almost the exclusive determinant of nat. gas units opex, the decline in prices in was one of the factors that drove SMP lower (-9.7% y-o-y in 2015 and -17.5% y-o-y in 2016). For 2017 SMP has picked up mainly due to increased demand though, averaging in the January-May period EUR 53.4/MWh (+26% y-o-y) pointing to significant profitability upside for thermal units. Chart 2. Brent prices ($/bbl) vs. Greek SMP (indexed) and natural gas import prices (indexed) Source: Capital IQ, LAGIE, RAE, AXIA Research Brent-$/bbl SMP-Indexed Nat.Gas-Indexed Detailed Financials AXIA Research Page 14

15 Income Statement E 2018F 2019F Revenues 5, , , , , , ,209.1 Total OPEX 5, , , , , , ,477.9 y-o-y - (0.0) 0.0 (0.1) 0.0 (0.1) (0.1) o/w Provisions (non-cash) EBITDA , , EBITDA margin 14.8% 17.4% 14.4% 20.2% 12.4% 15.2% 17.4% Depreciation EBIT (26.0) Other (5.3) (64.7) (1.2) (7.8) Interest Income Interest Expense (266.8) (278.0) (266.0) (250.9) (193.2) (174.0) (164.4) Net Financials (219.4) (213.8) (198.4) (154.2) (110.2) (91.0) (86.4) EBT (106.5) (136.3) (23.2) 9.4 Income Tax (263.1) (46.3) 4.1 (101.6) - - (2.7) EAT (229.1) 91.3 (102.4) 67.2 (136.3) (23.2) 6.6 Minorities - (0.00) Net Income (229.1) 91.3 (102.4) 67.2 (136.3) (23.2) 6.6 EPS (0.99) 0.39 (0.44) 0.29 (0.59) (0.10) 0.03 Declared Dividend (Total) DPS Balance Sheet E 2018F 2019F Total Fixed assest 12, , , , , , ,931.8 Investments Other Total non-current assets 12, , , , , , ,058.7 Inventories Net Receivables 1, , , , , , ,136.0 Other , Cash and equivalent Total current assets 2, , , , , , ,103.2 Total Assets 15, , , , , , ,161.9 Share Capital 1, , , , , , ,042.2 Other 3, , , , , , ,903.0 Retained earnings , , Minority rights Total Equity 5, , , , , , ,798.8 Interest bearing Bonds and loans 3, , , , , , ,850.9 Other non-current liabilities 3, , , , , , ,233.5 Total non-current liabilities 6, , , , , , ,084.4 Trade and other payables 1, , , , , , Short term borrowings Current portion of debt 1, Other current liabilities , Total current liabilities 3, , , , , , ,278.7 Total Equity and Liabilities 15, , , , , , ,161.9 Cash Flow E 2018F 2019F EBT (148.2) (136.3) (23.2) 9.4 Non-Cash Adjustments 1, , , , , WC Changes (72.5) (760.0) (468.2) 79.1 (404.6) (37.1) (17.5) Income tax paid (25.5) (13.3) (28.4) (252.0) - (310.0) (2.7) Net Cash from operating activities 1, , Capex (721.6) (670.4) (623.7) (727.5) (700.0) (570.0) (580.0) Other investing Change in debt (151.0) (242.0) (237.0) (400.0) (100.0) (150.0) Net Interest paid (252.5) (253.9) (233.6) (207.8) (193.2) (174.0) (164.4) Dividends Paid (5.8) (0.0) (11.6) (0.1) Net increase/(decrease) in cash and equivalent (19.1) (40.3) (201.7) 54.5 Year start cash End year cash (ex-restricted) *excluding IPTO pro-forma as of FY2107, Source: The Company, AXIA Research AXIA Research Page 15

16 Per share data E 2018F 2019F EPS (1.0) 0.4 (0.4) 0.3 (0.6) (0.1) 0.0 BVPS DPS Valuation ratios E 2018F 2019F P/E -2.3 x 5.8 x n.m. 7.9 x n.m. n.m x EV/EBITDA 8.2 x 6.2 x 7.0 x 4.8 x 7.2 x 6.4 x 5.9 x EV/EBIT 27.8 x 15.3 x 63.7 x 15.3 x x 66.8 x 45.1 x EV/Sales 1.2 x 1.1 x 1.0 x 1.0 x 0.9 x 1.0 x 1.0 x P/BV 0.1 x 0.1 x 0.1 x 0.1 x 0.1 x 0.1 x 0.1 x Div. yield 0.0% 2.2% 0.0% 0.0% 0.0% 0.0% 0.0% FCF yield % 5.5% -33.0% 29.9% 46.9% -56.6% -19.1% 38.3% ROA -1.4% 0.5% 0.6% -0.6% 0.4% -0.8% -0.2% ROE -4.2% 1.5% -1.7% 1.1% -2.3% -0.4% 0.1% ROIC 1.4% 2.0% 0.5% 1.6% -0.1% 0.4% 0.5% Growth rates E 2016F 2017F 2018F 2019 Revenues -1.8% -2.2% -8.3% -6.3% -5.9% -9.2% EBITDA 16.0% -18.9% 28.3% -42.4% 15.3% 3.5% EBIT 60.8% -78.2% 264.7% % % 41.3% EBT 304.2% % n.m % -82.9% % Net Income % % n.m % -82.9% % 69.9% Profitability ratios E 2016F 2017F 2018F 2019 EBITDA margin 14.8% 17.4% 14.4% 20.2% 12.4% 15.2% 17.4% EBIT margin 4.3% 7.1% 1.6% 6.3% -0.5% 1.5% 2.3% Net Income margin -3.8% 1.6% -1.8% 1.3% -2.8% -0.5% 0.2% Leverage Ratios E 2016F 2017F 2018F 2019 LT Debt / Total Capitaliztion 5.6 x 9.1 x 8.4 x 7.4 x 7.6 x 7.4 x 7.2 x Total Debt / Total Capitalization 9.3 x 10.4 x 10.0 x 8.6 x 7.9 x 7.7 x 7.4 x Net Debt/EBITDA 5.3 x 5.0 x 5.9 x 4.1 x 6.3 x 5.7 x 5.2 x FFO / Total Debt 0.1 x 0.1 x 0.1 x 0.2 x 0.1 x 0.1 x 0.2 x Gearnig (Total debt / Debt+Equity) 0.5 x 0.5 x 0.5 x 0.4 x 0.4 x 0.4 x 0.4 x Net Debt / Equity 0.9 x 0.8 x 0.8 x 0.7 x 0.7 x 0.7 x 0.7 x Coverage Ratios E 2016F 2017F 2018F 2019 FFO Interest Coverage ((FFO + Int.) / Int.) 2.8 x 4.3 x 4.2 x 6.2 x 5.6 x 7.8 x 8.4 x Pretax Interest Coverage (EBIT / Int.) 1.2 x 1.9 x 0.5 x 2.1 x -0.2 x 0.7 x 1.1 x *excluding IPTO pro-forma as of FY2107, Source: The Company, AXIA Research AXIA Research Page 16

17 Disclosures General information This research report was prepared by AXIA Ventures Group Limited, a company incorporated under the laws of Cyprus (referred to herein, together with its subsidiary companies and affiliates, collectively, as AXIA ) which is authorised and regulated by the Cyprus Securities and Exchange Commission (authorisation number 086/07). AXIA is authorized to provide investment services in the United Kingdom, Cyprus, Greece and in Portugal pursuant to its permissions under the Markets in Financial Instruments Directive and may also provide similar services in other countries, inside or outside of the European Union, subject to the applicable provisions. AXIA Ventures Group Limited is not a registered broker-dealer in the United States (U.S.), and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. In the U.S., this research report is intended solely for persons who meet the definition of major U.S. institutional investors in Rule 15a-6 under the U.S. Securities and Exchange Act, as amended, or persons listed under Rule 15a-6(4)) and is meant to be disseminated only through Axia Capital Markets LLC, a wholly owned subsidiary of AXIA Ventures Group Limited and associated US registered broker-dealer in accordance with Rule 15a-6 of the US Securities and Exchange Act. Content of the report The persons in charge of the preparation of this report, the names of whom are disclosed below, certify that the views and opinions expressed on the subject security, issuer, companies or businesses covered by this research report (each a Subject Company and, collectively, the Subject Companies ) are their personal opinions and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report. Whilst all substantial sources of information for the research are indicated in this report, including, without limitation, bases of valuation applied to any security or derivative security, such information has not been disclosed to the Subject Companies for their comments and no such information is hereby certified. All information contained herein is subject to change at any time without notice. No member of AXIA has an obligation to update, modify or amend this research report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the Subject Company is withdrawn. Further, past performance is not indicative of future results. Persons responsible for this report: Argyrios Gkonis (Analyst), Constantinos Zouzoulas (Head of research). Key Definitions AXIA Research 12-month rating* Buy Neutral Sell Under Review Restricted Not Rated The stock to generate total return** of and above 10% within the next 12-months The stock to generate total return**between -10% and 10% within the next 12- months The stock to generate total return** of and below -10% within the next 12 months Stock s target price or rating is subject to possible change Applicable Laws / Regulation and AXIA Ventures Group Limited policies might restrict certain types of communication and investment recommendations There is no rating for the company by AXIA Ventures Group Limited * Exceptions to the bands may be granted by the Investment Review Committee of AXIA taking into account specific characteristics of the Subject Company **Total return: % price appreciation equals percentage change in share price from current price to projected target price plus projected dividend yield. AXIA Research Page 17