UTILITIES EQUITY RESEARCH (FUNDAMENTALS) Water Sewage/EYDAP-EYAPS. Outlook: Key Statistics: Date: 14/02/17

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EQUITY RESEARCH (FUNDAMENTALS) N. CHRYSSOCHOIDIS STOCK BROKERAGE INVESTMENT SERVICES S.A. Equity Research Department UTILITIES Water Sewage/EYDAP-EYAPS Outlook: Date: 14/02/17 EYDAP S.A: 5.

1 EQUITY RESEARCH (FUNDAMENTALS) N. CHRYSSOCHOIDIS STOCK BROKERAGE INVESTMENT SERVICES S.A. Equity Research Department UTILITIES Water Sewage/EYDAP-EYAPS Outlook: Date: 14/02/17 EYDAP S.A: 5.90Euros/Share-UV EYAPS S.A: 3.60Euros/Share-FV We initiate the coverage of the two Hellenic Sewage Utilities namely: Athens Water Supply and Sewage Co. (EYDAP) and Thessaloniki Water and Sewage Co. (EYAPS). These shares are showing a stable operating performance while maintaining strong balance sheet fundamentals and producing a sustainable level of FCFF in combination with an interesting dividend yield that ensures important returns for the shareholders. Key Statistics: Valuation EYDAP EYAPS Share Price 5,23 3,53 Price High 52 week 6,00 3,73 Price Low 52 week 3,74 2,76 Current num. of shares P/E (E) 19 9 Market Cap EPS (E) 0,28 0,29 DPS 0,49 0,14 *Closing Price as 13/02/2017 Analyst: Dimitrios Villiotis Tel: mail: dvilliotis@chryssochoidis.gr web:

2 Athens Water Supply and Sewage Company/ Thessaloniki Water and Sewage Company. Our estimated FV reflects our approach for the valuation of the Utilities shares in general: The estimated FV is a blended one which derives from: a) The Fundamental EV from the forecasted DCF valuation model that takes into account the historical performance of both companies and accordingly, proves that they are capable of preserving and maintaining a sustainable leel of FCFF, b) The expected price of the market value per share treating both stocks as preferred shares paying a fixed return to their shareholders and c) the critical balance sheet components namely Cash Position, BVPS and Financial Leverage that could ensure the sustainability of the operations without harming the operating and net profitability. EYDAP s (Athens Water Supply and Sewage Co.) historical performance has shown that the company is able to generate positive FCFF, even in periods with increased capital expenditures and intensive use of working capital. In addition, the company s efforts towards the reduction of operating expenses lead to the stabilization of the operating margin to a satisfactory level of 30%. The company s revenues are showing a flat growth in the last two fiscal periods while the company s EBITDA gains are up to 90mn.Euros on average per annum and the respective EBITDA margin to 30%. EYDAP is trading at 10.10x EV/EBITDA and is in line with its European peers EV/EBITDA ratio (10.90x). In FCF terms, we expect on average the generation of positive 50mn. Euros per annum. We should note that in our DCF Valuation model we decided to exclude the amount of the receivables from customers due to the lack of visibility regarding the matter. Since the level of receivables is high and reaches 225mn. Euros it is an important factor for the company s valuation and, needless to say, any potential (total or partial) reimbursement of the above amount could seriously enhance the company s FCF s thus strengthening its Enterprise Value. During the past decade, EYDAP has distributed a cumulative amount of 155mn.Euros to its shareholders in forms of both regular dividends and capital returns. This brings up the company s average payout ratio to 35% excluding any extraordinary dividends and distributions of retained earnings. We expect the company to maintain its dividend policy to a normalized ratio of 36% and, taking into account the historical average Dividend/Share amount and the threshold of 4.50% DIV yield for securities with similar risk profile, derive a FV/Share that complies with EYDAP s share price and is in line with the DIV yield of its European peers. Our blended FV estimate for EYDAP S.A is 5.90Euros/Share taking into account the company s cash position alongside the BVPS. The company s share is having a 12%

3 upside potential according the current market price with an additional upward potential regarding the company s efforts towards the total or the partial reimbursement of the receivables amount. EYAPS s operating characteristics are quite similar to EYDAP s. EYAPS s revenue growth could characterized as normalized after a period of important growth. The company is capable to preserve the operating earnings at a level of 26mn. Euros on average per annum and an EBITDA margin of 35%. The company is trading 4.50x the EV/EBITDA significantly lower than its European peers respective EV/EBITDA multiple. According to our DCF valuation model the company s fundamental FV is in line with the company s market price per share. EYAPS s crucial balance sheet components are reflecting the ability of the company to continue its growth without hampering the operating earnings and overall profitability. The company has unleveraged capital structure; strong cash position and manages effectively the receivables from customers. In terms of Dividend yield, the company preserves the historical average payout ratio of 35% excluding the capital returns which bring the payout ratio up to 40%. According to EYAPS s historical DPS and the threshold of 4, 50% return of securities with similar characteristics and the norm for the European Water Sewage utilities, the BVPS, the strong Cash Position and the unleveraged balance sheet result to a blended FV of 3.60Euros/share, in line with the current market price.

4 FINANCIAL SUMMARY AND VALUATION TABLES-EYDAP S.A Table I: Income Statement Income Statement 2016E 2017E 2018E 2019E 2020E Total Sales CGS Gross Profit Other Income Admin. Costs Sales Costs EBITDA D&A EBIT Rest Costs Interest Income Interest Expenses Other Gains/Losses EBT Taxation Net Income/Loss Source: Company s statements, N.Chryssochoidis Research Department estimates. Table II: Cash Flows Cash Flow estimations (Ε) 2016E 2017E 2018E EBIT Taxation (1-Tax Rate) 71% 71% 71% NOPAT Depreciation Capital Exp IWC NCF Source: Company s statements, N.Chryssochoidis Research Department estimates Table III: Valuation Metrics Growth 12/16E 12/17E 12/18E Sales growth 0% -2% 2% EBITDA growth -2% -4% 2% Net Profit/Loss growth -32% 31% 2% RATIOS 12/16E 12/17E 12/18Ε Debt/Equity Tot.Equity Tot.Equity Tot.Equity Capex/EBITDA 26% 27% 27% ROE 3% 4% 4% WACC 14,00% 14,00% 14,00% VALUATION 12/16E 12/17E 12/18Ε Book Value 8,45 8,45 8,45 P/BV 0,70 0,70 0,70 P/E

5 FINANCIAL SUMMARY AND VALUATION TABLES-EYAPS S.A Table I: Income Statement Income Statement 2017E 2018E 2019E 2020E 2021E Total Sales CGS Gross Profit Rest Income Sales. Costs Admin. Costs Rest Costs EBITDA D&A EBIT Interest Expense Interest Income FX Gains/Losses ΕΒΤ Taxation Net Income/Loss Source: Company s statements, N.Chryssochoidis Research Department estimates. Table II: Cash Flows Cash Flow estimations (Ε) 2016E 2017E 2018E EBIT Taxation (1-Tax Rate) 71% 71% 71% NOPAT Depreciation Capital Exp IWC NCF Source:Company s statements, N.Chryssochoidis Research Department estimates. Table III: Valuation Metrics RATIOS 12/16E 12/17E 12/18Ε Debt/Equity Total Equity Total Equity Total Equity Capex/EBITDA 14% 13% 14% ROE 9% 8% 8% WACC 16,15% 16,00% 16,00% Growth 12/16E 12/17E 12/18E Sales growth 0% 1% -2% EBITDA growth -1% 2% -1% Net Profit/Loss growth 6% 1% -3% VALUATION 12/16E 12/17E 12/18Ε Book Value 4,57 5,00 5,00 P/BV 0,79 0,72 0,72 P/E 9 9 9

6 Ρήηπα Πεπιοπιζμού Εςθύνηρ: Απαγνξεύεηαη ε αλαδεκνζίεπζε ηνπ παξόληνο ρσξίο ηελ άδεηα ηεο Ν. ΥΡΤΟΥΟΪΔΗ ΥΡΗΜΑΣΙΣΗΡΙΑΚΗ Α.Ε.Π.Ε.Τ. Οη απόςεηο πνπ πεξηέρνληαη βαζίδνληαη ζε πεγέο πνπ ζεσξνύληαη αμηόπηζηεο, σζηόζν ε Ν. ΥΡΤΟΥΟΪΔΗ ΥΡΗΜΑΣΙΣΗΡΙΑΚΗ Α.Ε.Π.Ε.Τ. δελ επζύλεηαη γηα ηελ εγθπξόηεηα, νξζόηεηα ή αμηνπηζηία ηνπο θαη δηαηεξεί ην δηθαίσκα αιιαγήο ηνπο ρσξίο πξόηεξε εηδνπνίεζε. Σόζν ε Ν. ΥΡΤΟΥΟΪΔΗ ΥΡΗΜΑΣΙΣΗΡΙΑΚΗ Α.Ε.Π.Ε.Τ. όζν θαη νη δηεπζύλνληεο θαη ππάιιεινη ηεο δελ θέξνπλ νπδεκία επζύλε γηα νπνηαδήπνηε ζπλέπεηα ησλ πιεξνθνξηώλ απηώλ. Το παπόν δεν αποηελεί πποζθοπά, πποηποπή ή επενδςηική ππόηαζη για αγοπά ή πώληζη μεηοσών ή άλλων κινηηών αξιών. Οι επενδύζειρ πος αναθέπονηαι ενδέσεηαι να µην είναι οι ενδεδειγμένερ για οπιζμένοςρ επενδςηέρ. Disclaimer: This report has been issued by N. CHRYSSOCHOIDIS STOCK BROKERAGE I.S.S.A., a member of the Athens Stock Exchange, and may not be reproduced in any manner or provided to any other persons. Each person that receives a copy by acceptance thereof represents and agrees that it will not distribute or provide it to any other person. The information contained herein has been obtained from sources believed to be reliable but has not been verified by N. CHRYSSOCHOIDIS STOCK BROKERAGE I.S.S.A. The opinions expressed herein may not necessarily coincide with those of any member of N. CHRYSSOCHOIDIS STOCK BROKERAGE I.S.S.A. No representation or warranty (express or implied) is made as to the accuracy, completeness, correctness, timeliness or fairness of the information or opinions herein, all of which are subject to change without notice. No responsibility of liability whatsoever or howsoever arising is accepted in relation to the contents hereof by N. CHRYSSOCHOIDIS STOCK BROKERAGE I.S.S.A. or any of its directors, officers or employees. This report is not an offer to buy or sell or a solicitation of an offer to buy or sell securities mentioned herein. N. CHRYSSOCHOIDIS STOCK BROKERAGE I.S.S.A. may effect transactions in or perform or seek to perform brokerage services for companies covered. The investments discussed in this report may be unsuitable for investors, depending on their specific investment objectives and financial position. Σημειώζεις/Notes Οδηγός Συζηάζεων/Ratings P: Τρέτοσζα Τιμή Market Price MCAP: Κεθαλαιοποίηζη Capitalization UV Φαμηλή Αποηίμηζη/ Φαμηλός Κίνδσνος Underpriced/ Small Risk EPS: Καθαρά Κέρδη Ανά Μεηοτή Earnings per Share Stock Price < 20% of Fair UV1 Φαμηλή Αποηίμηζη/ Κίνδσνος Underpriced/ Risk Stock Price < 10% of Fair P/E: Λόγος Τιμής προς Κέρδη Price/Earnings Ratio FV Σωζηή Αποηίμηζη/ Φαμηλός Κίνδσνος Fairly Priced/ Small Risk 10%<Stock Price<10% P/S: Λόγος Τιμής προς Πωλήζεις Price/Sales Ratio OV1 Σωζηή Αποηίμηζη/ Κίνδσνος Fairly Priced/ Risk Stock Price >10% of Fair OV Υπερηιμημένη Μεηοτή Overvalued Stock Price >20% of Fair D/A: Σσνολικός Δανειζμός προς Παθηηικό Total Debt/Assets Ratio DY: Απόδοζη Μερίζμαηος Dividend Yield N/R Μη Αποηιμημένη Μεηοτή Not Rated ROE: Απόδοζη Ιδίων Κεθαλαίων Return on Equity FV: Τιμή Σωζηής Αποηίμηζης Fair Value Price

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