ACEA (1K) | Buy | Q2 preview: positive even before cap. gain

Research evidence excerpt

ACEA (1K) | Buy | Q2 preview: positive even before cap. gain

is further upside from the re-leveraging in regulated destruction due to acquisitions led by politics (i.e. AMA in waste

networks. collection).

Catalysts Paper overhang if the Municipality of Rome (51% stake) or Suez

Re-rating and re-leveraging towards regulated peers. (23%) were to decide to reduce their stake, though this could

Supportive regulatory framework in water & electricity resolve the liquidity issue.

distribution. Unexpected changes in regulation. Lower allowed WACC. New

Reform of small autonomous municipal management in water. taxes on utilities. Weaker-than-expected free cash flow

Sector consolidation. generation due to NWC absorption.

Key data charts

Price performance Sales split by region Sales split by division

SWOT analysis

Strengths Weaknesses

Stable growth and cash flow visibility due to its business mix. Lower share liquidity than peers.

Monopoly in electricity distribution in Rome. Past governance issues (sudden change in management).

Some 95% of EBITDA is regulated or quasi-regulated. Working capital absorption is historically higher than peers.

Supportive regulatory framework in its main core businesses. Higher bad debt provisions (to be solved with the disposal of supply).

Opportunities Threats

Development in water business, in particular in southern Italy. Delays in the organic development or in the consolidation process.

Cost cutting and innovation (smart electricity distribution grids). Change in regulation in water, waste and electricity distribution.

Rerating after asset rotation to become a pure regulated company. New/higher taxes on utilities.

Increased profitability in waste-to-energy projects. Negative opinion from rating agencies on the re-leverage plan.

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