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Financial Results Q1 2023
Hera on stock exchange
Evidence on falling debt can bring new boost to the value of Hera shares
In a stock market seeking direction, due to uncertainties about when central banks will end their tightening monetary policies, a bullish movement of Hera stock started in recent weeks. Fuelling the rally, in addition to the healthy FY 2022 results, is the stock’s defensive profile, appreciated by portfolio managers in this de-risking phase, after the difficulties of several banking institutions emerged.
While waiting for a clearer macroeconomic scenario, which could reduce the volatility of equity indices and give them a direction, Hera share will also benefit from the release of quarterly results, which confirm the recovery of a solid financial profile for the Group, with a lower debt level as a result of the withdrawals from storage of large gas reserves bought to manage the energy crisis in 2022.
After the 2023 Annual General Meeting approved the distribution of a 2022 dividend of 12.5-euro cents per share, the dividend-related remuneration is confirmed as a key pillar of Hera’s equity story, with a yield of 5% based on the price at the end of 2022.
We explore these topics with a Q&A session with Jens Klint Hansen, Hera’s Head of Investor Relations.
Jens Klint Hansen
How should we read the stock market context in these early months of 2023?
Despite the uncertainties that remain in the macroeconomic scenario, the Italian stock market has shown a good rise, reaching a peak at the beginning of March while posting the best performance among European stock exchanges. This upward movement was driven by the financial stocks, which have a significant weight in the FTSE MIB index, since banks are known to benefit from rising interest rates. However, starting in March, in the wake of the US regional bank failures and UBS’s rescue of Credit Suisse, market sentiment in this area became less positive, leading many investors to implement de-risking policies in their portfolios. While there is consensus that central banks are about to reach the peak of interest rate hikes, uncertainty remains as to when monetary policies will actually stop being restrictive and what impact this might have in terms of economic growth and corporate earnings. This translates into a substantial lack of direction in stock markets, while the risk-off mode adopted by investors is reflected in a rotation that favours defensive stocks.
And what about the trend of Hera shares?
Since the year’s low of 2.38 euro, reached on the past 13 March, Hera started an upward trend that led the share price to outperform the market index in recent weeks. Such development, although attributable to the favourable environment for defensives, also gained further strength from the solid annual results released on 21 March. Therefore, today’s price levels are over 10% higher compared to the beginning of the year.
How is the current consensus picture?
Today the consensus target price is 3.26 euro, slightly up following the last research released by Kepler Cheuvreux, which increased the target price from 2.90 to 3.00 euro, also upgrading its rating from Neutral to Buy. Currently, five out of seven analysts recommend buying the stock, while only two express a neutral position, as there are no suggestions to sell. This very positive picture of recommendations is justified by the potential appreciation of the stock compared to the prices recorded in recent stock market trading sessions, even though the gap significantly narrowed after the rally that has begun in mid-March 2023.
| Broker | Rating | Target price (€) |
| Banca Akros | Accumulate | 3.20 |
| Banca IMI | Buy | 3.40 |
| Equita Sim | Hold | 3.30 |
| Exane BNP Paribas | Buy | 3.30 |
| Intermonte | Neutral | 3.00 |
| Kepler Cheuvreux | Buy | 3.00 |
| Mediobanca | Outperform | 3.60 |
| Average | 3.26 |
What impact do you expect from the publication of the quarterly results that the BoD approved today?
The P&L figures that we present for the first quarter of 2023 indicate that we are well ahead in the execution of the Business Plan. With a progress of about 110 million euro, we have already covered almost 44% of the total EBITDA growth that we are targeting by 2026, taking about 25% of the time. An even more appreciable outperformance considering that we are coming from a financial year, 2022, which was an annus horribilis, between war, energy crisis, inflation and fast-rising interest rates… Therefore, the new Executive Chairman, Cristian Fabbri, who has worked in roles of responsibility in Hera’s group for more than 16 years, can start his mandate with a good set of results to present to investors, which he can legitimately be pleased about, as he was part of the leadership team that contributed to the achievement of these numbers.
However, I believe that the news that the
stock market will appreciate most from the
release of these quarterly results is the
debt level, significantly lower than that at
2022YE. This reflects the sale of the gas
reserves that we bought and sent to
storage to protect business continuity in
an environment that could present critical
supply issues.
This piece of evidence could also have a positive impact on analysts’ valuations.
Is the 472-million-euro debt reduction a kind of unexpected news?
Actually, Hera has always stated, since last May, that the large amount of gas purchased –we talk about almost 900 million euro – would be sent to storage and then sold to customers, at predetermined prices, as consumption was progressing over the thermal season. Although this was clear to us, when looking at the stock price performance, there must have been some scepticism in the market as to whether the stock would be fully reabsorbed, even though gas in storage was already decreasing in the fourth quarter of 2022. Now that the leverage level is back below the 3x threshold and Hera’s financial solidity is clearly recovered, we expect to see a positive reaction on the share price.
That investment in gas stock, that to us
was a way to control the risk profile, was
probably misunderstood by the market,
which might have considered it as a risk
itself.
What about the dividend yield component, which, together with the capital gain perspective, fuels the Total Shareholder Return?
At the Annual General Meeting of 27 April 2023, the distribution of a dividend of 12.5-euro cents per share was approved, in line with the Board of Directors’ proposal. The dividend yield, if calculated on the price at the end of 2022, therefore stands at 5%. This level proves that Hera can offer attractive remuneration through dividends even in complex scenarios such as those of the last few years, thus cementing a fundamental pillar of the equity story.