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01 June 2014

Summary company financials (m)


Year end December FY2011 FY2012 FY2013 FY2014E
Price 9.50 Revenue 358.6 353.3 336.2 334.5
Market cap (m) 1,011.8 -5.4% -1.5% -4.9% -0.5%
Enterprise value (m) 666.3 EBITDA ex provisions 105.9 164.9 138.0 139.6
29.5% 46.7% 41.0% 41.7%
Free float 39% Net income 26.1 51.6 78.2 79.3
Daily val traded (m) 3.20 Net debt (cash) 179.7 142.4 -328.8 -345.4
Shares outstanding 108.5 106.5 106.5 106.5
EV/Sales 1.44 1.97 1.47 1.99
EV/EBITDA 4.9 4.2 3.6 4.8
PE 12.9 10.7 10.6 12.8
Athens Water Supply and
Sewerage S.A.
Revenue growth
EBITDA margin
Athens Water Supply & Sewerage SA, "EYDAP", was established in 1980 following the merger between the Hellenic Water Company and the
Sewerage Organisation of Athens. The company was listed on the Athens Stock Exchange in 1999, and, has remained profitable and paid
dividends throughout the Greek economic crisis. EYDAP is the largest water company in Greece and serves 4.4m customers, 40% of the Greek
population, in Athens and the surrounding regions. Whilst there is no formal agreement between the Greek government and EYDAP for the
price of water, pricing is de-facto controlled by the Greek government through its 61% stake in the company.

The investment opportunity in EYDAP has emerged after the company settled with the Greek state and local government authorities in 2013
relating to overdue debts due to EYDAP. The payments to EYDAP resulted in overall free cashflow of 495m in 2013 versus 64m in 2012 and,
by eliminating the company's debt and moving it to a YE2013 328m net cash position, reduced its enterprise value accordingly.

EYDAP trades at 12.8x PE FY2014E (8.4x PE ex cash), 4.8x EV/EBITDA and 0.98x FY2014E book value. The valuation represents a 50% EV/EBITDA
discount to its comp set, according to our analysis. Despite a 16.5% overall revenue decline through the Greek financial crisis, EYDAP improved
its profitability, primarily by reducing staff costs. As the Greek economy recovers, there exists opportunity for further shareholder value to be
created at EYDAP, including by increased retail customer receivable collection and a return to growth in EYDAP's revenues. EYDAP revenues
have shown correlation, albeit with less volatility, to changes in Greek GDP. EYDAP 's net cash position also leaves open the possibilty for the
group to return capital to shareholders, and the Greek government's continuing privatisation program may lead to changes in EYDAP's
ownership structure or control.

Looking at EYDAP's activities in more detail - the company derived in 2013 44% of its revenue from the supply of water to residential
customers, and 21% of revenue from supply of water to other customer types including municipal networks, state-local authorities and
industrial customers. A further 30% of revenue was achieved from sewerage services, the bulk of which was also to residential customers. The
remaining 5% of revenue was derived from other activities including the operation of hydro-electric and biomass power plants.

As noted, EYDAP's revenues have declined 16.6%, from a peak of 403m in 2008 to 336m in 2013. Greek GDP shrunk by 30.0% over the same
period. The decrease at EYDAP has been driven by a lower per capita consumption through the economic crisis, as well as a lower number of
connected households due to the repatriation of immigrants, according to company disclosures. Over the same period, however, EBITDA
(adjusted for provisions, and we also add back customer interest on outstanding receivables) has risen 52% from 90.7m to 138.0m as the
company has reduced its payroll costs from 48.8% to 31.3% of revenue.

The improved profitability comes at a time when revenue shrinkage may have troughed. There has been reasonable correlation between
revenue growth at EYDAP and Greek GDP growth, albeit EYDAP's revenue has been less volatile. Greek GDP shrinkage appears to be lessening:
the -1.1% contraction in Q1 2014 was lowest rate of contraction since Q3 2008. Bank of Greece Governor Provopoulos is guiding positive GDP
growth for FY2014.

Additional opportunity for revenue growth EYDAP has emerged from the incapability of certain municipalities to meet their payments due to
EYDAP. As part of the agreed settlement, EYDAP will take over the management of the water operations of certain municipal networks, renting
the operating assets from the municipality. The agreement is essentially a way of equitising the receivables which were due to EYDAP, and we
calculate the municipal networks so far disclosed to have a combined population of 200,000, delivering a 4.5% uplift to EYDAP customer
numbers in forward years. We'd also note that currently EYDAP only bills 76% of its water consumption, suggesting further revenue upside if a
more efficient approach to billing management can be undertaken over the coming years.

In terms of cash generation, improvement in Greek economic conditions should allow EYDAP to better collect its retail customer receivables,
which at 39% of revenue, are 70m higher than the 17% of revenue they averaged between 2004-2008. Improved receivable collection would
bring the capital return potential, assuming a target zero debt position, to up to 400m, 40% of the current market capitalisation. The average
debt level of EYDAP's peer group, however, at 4.0x EBITDA, suggests that a capital return of up to 960m (based on FY2014E EBITDA), 95% of
the current market capitalisation, may be theoretically possible. EYDAP has made no official statement on returning capital to shareholders.

There exists some "ferment" in EYDAP's shareholder structure. The company was understood to be a candidate for further privatisation, with
the Greek government to take its stake below 61%. The move has, however, so far been blocked by Greeces Supreme Administrative Court on
the grounds of public health. Greek bank Piraeus sold its 9.9% stake in EYDAP to Paulson & Co at the beginning of May, and Suez
Environnement executives are on the record expressing an interest in Greek water assets. Whilst it is unclear how this scenario will play out,
we would generally observe that given the Greek government's 61% shareholding and its need to pay down its own debt, the government's
interests are likely to have some alignment with minority shareholders both in terms of value maximisation and also in considerations relating
to returning capital to shareholders

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