When looking for cheap European cash-cows, there is nothing cheaper out there than Polish electrical utilities companies. The two companies I have looked at is Energa SA and Enea SA, with a main focus on Energa.
Energa is a Polish electrical producer and distributor which focuses both on coal and renewables. As for now the majority of the company´s production stems from coal power plants, however it reinvests its earnings into renewable energy (both wind and hydropower).
The company is currently super cheap and the stock price has been dragged down by the upcoming COP 21 taking place in Paris. This seems reasonable as the meeting may end up in policies which will have adverse effects on Energa´s profitability. However, the stock is down by 51 % this year, and it seems like the market is pricing the company as if coal produced electricity will be band at some point this decade. As long as the company can generate solid cash-flows from selling coal produced electricity, while utilizing its current infrastructure to increase clean energy production this may be a good bet. I further believe that the Polish government will protect its electrical utility industry as cheap electricity is the backbone of the country´s important manufacturing segment (taking a hard stand on Polish coal produced electricity may end up hurting a high number of polish blue collar workers).
The company is currently trading at a 5.2x trailing P/E and a 3.2x trailing EV/EBITDA. The dividend yield is 10.6 % and the market believes in continued solid dividend payments. All this sounds too good to be true and it may be if EU kills the Polish coal based utility industry. I have not yet decided if this is a great opportunity or a dog with fleas.
Energa peer analysis (EV/EBITDA):
Energa dividend forecast:
Disclosure: I do not hold any positions in Energa SA.
I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
