We updated our view on Fondul Proprietatea with a target price of RON 1.1159 per share and a BUY recommendation. (Prev TP 1.0666 as at Sep 24 2014)
* As the current 27% discount to NAV is below the management agreement objective of 15%, the Fund will continue to pour cash into investors’ pockets.
* Last year the Fund distributed some RON 1.9b. Accordingly, the discount to NAV reduced from 33% at 2013-end to 26% at 2014-end.
* This year at least RON 1.6b to be returned to shareholders via buy-backs and share capital reduction.
* RON 0.05 per share distribution is expected by June-end via the reduction of the nominal value of the Fund’s shares to RON 0.90 (6% DIVY). The Fund manager recommended and the shareholders approved (on 21 January 2015) a cash distribution of RON 0.05 per share (RON 609m).
* The fifth buy-back programme started on 10 February 2015. The programme refers to the acquisition of a maximum number of 227,572,250 shares and needs some RON 198m to be completed if last close considered.
* The sixth buy-back programme to be approved. On 27 April GSM, shareholders are convened to approve the buy-back of 891,770,055 shares or GDRs/ DIs equivalent. At the last close, the sixth buy-back would require some RON 775m.
* The exit from Electrica subsidiaries is expected in H1’15. Price negotiations are ongoing and the Fund expects a conclusion to be reached by the end of Q1’15. We see Electrica stakes fairly priced in the Fund’s NAV.
* The Fund manager expects to reduce further the discount to NAV through Q2’15 LSE listing. Trading in London is planned to be achieved via the use of GDRs or DIs.
* In the medium term, the Fund looks trapped as minority in Enel, E.ON, GDF Suez subsidiaries. RON 2,679m (21% of NAV) stuck in. Enel halted the Romanian market exit as the group managed to reduce the debt burden following the successful completion of several transactions. E.ON and GDF Suez did not consider either withdrawing from Romania or buying out the Fund’s minority stakes.
* The chances for an IPO this year are small as no firm privatisation calendar has been presented up to now. Hidroelectrica 15% IPO is expected in H1’16 (offering value EUR 350m).
* Posta Romana privatisation might take place at the end of H1’15. The Fund that owns 25% in Posta Romana, values the respective stake at RON 56m.