Our Investment Banking team is proud to have supported Brown Hotels in the acquisition of Jadran hoteli Rijeka as buy-side advisors, coordinating the whole process. We believe it is Brown Hotels’ first step in repositioning Rijeka as one of the most desirable cities on the Croatian coastline.

Jadran hoteli Rijeka is a hospitality group based in Rijeka, which includes seven hotels, two restaurants, and a camp, located in the areas of Rijeka, Kostrena and Kraljevica. In their 130-year tradition, the Group is most famous for their four-star hotel Jadran, three-star hotels the Continental and the Neboder, tourist resort Uvala Scott, and camp Oštro.

Brown Hotels is an international hospitality group known for its diverse portfolio of design-led boutique hotels. The hotels are all rooted in devotion to service, design, innovation, style, and authenticity. Their properties have been recommended by the world’s leading international lifestyle, design, and travel publications such as Vogue, Travel & Leisure, Wallpaper, and more. Brown Hotels is an international design hotel collection, with hotels located in Tel Aviv, Jerusalem, Athens, and Croatia, with new hotels opening soon around the world.

In 9M 2022, Fondul recorded an unrealized gain from equity instruments at fair value through P&L of RON 3.14bn. Net operating income increased by 13.6% YoY, while the Fund recorded a net profit of RON 3.51bn, an increase of 13.3% YoY. Finally, NAV as of 31 June 2022 stood at RON 15.4bn, an increase of 25.8% YoY.

In 9M 2022, the unrealized gain from equity instruments at fair value through profit and loss amounted to RON 3.14bn. This increase was generated by Hidroelectrica, as a result of the increase in Hidroelectrica’s holding due to the strong performance registered by the company in the current electricity market. Fondul’s Hidroelectrica holding generated RON 2.1bn of unrealized gain. Solid results from Hidroelectrica’s holding were further amplified by a strong performance of OMV Petrom, generating an unrealized gain of RON 370.6m.

The Fund also recorded a net realized loss from equity investments at fair value through profit or loss, which was generated by the negative change in fair value for the holding in Engie Romania (unrealized loss of RON 123.2m), E-Distributie Banat (RON 111.9m), E-Distributie Dobrogea (RON 84.2m) and E-Distributie Muntenia (RON 79.5).

In total, the net operating income amounted to RON 3.61bn, an increase of 13.6% YoY. Moving on to OPEX, it amounted to RON 95.4m, an increase of 25.8% YoY, coming mainly from an increase in administration fees (+8.5% YoY). The larger increase in op. income compared to OPEX meant that EBT amounted to RON 3.52bn, an increase of 13.3% YoY.

The Fund, therefore, recorded a non-taxable income of RON 658.5m, which mitigates the non-deductible expenses of RON 206.2m, as well as the impact from the income tax of RON 562.7m. When combined with the mentioned income tax at 16% (RON 562.7m), this would mean that the Fund does not pay any income tax. As such, the net income amounted to RON 3.5bn, an increase of 13.3% YoY.

Fondul Proprietatea key financials (9M 2021 vs. 9M 2022, RONm)

Source: Fondul Proprietatea, InterCapital Research

Balance Sheet

Looking at the balance sheet, the Fund recorded a decrease in liquid assets (including cash and cash equivalents, deposits with banks, treasury bills, and government bonds) of 27.3% YTD. Finally, other assets amounted to RON 56.2m (FY 2021: RON 298.7k), as a result of prepaid expenses and the Bank of New York annual fee.

Meanwhile, total liabilities decreased by 76.4% YTD and amounted to RON 105.8m, due to the lower dividends payable, net of withholding tax. Finally, the Fund’s total NAV amounted to RON 15.4bn, an increase of 25.8 YoY, meaning that the NAV per share amounted to RON 2.6935.

In 9M 2022, Transgaz recorded an operating revenue increase of 16.1% YoY, an EBITDA increase of 29.5%, and a net profit to majority of RON 269.7m, an increase of 155% YoY.

Operating revenue during this period amounted to RON 1.11bn, an increase of 16.1%, or RON 154.1m. The revenue growth was influenced by several factors. First of all, the revenue from capacity booking was RON 190.9m higher. This came as a result of higher revenue from an auction premium of RON 129.9m, following the capacity booking auctions performed according to the CAM-NC by interconnection points. Furthermore, revenue from the auction premium on 30 September 2021 amounted to RON 13m, while on 30 September 2022, it amounted to RON 142.9m. On the other hand, booking capacity was lower by 15.9m MWh, which decreased revenue by RON 34.9m. Capacity booking tariff was higher by RON 0.35/MWh, which had a RON 95.9m positive impact on revenue. On the other hand, commodity revenue was down by RON 48.9m, due to lower gas transmitted capacities (-8%). Other operating revenue also recorded an increase of RON 23.5m, mainly due to grants obtained for the financing of major investment projects following their completion and commissioning, which was higher by RON 24.8m.

Operating costs increased by 15%, or RON 130.1m, to RON 1.01bn. Of this, depreciation increased the most, by 30% to RON 324.5m, due to the completion and commissioning of major investment projects. Employee costs increased by RON 12.1m to RON 333.9m, mainly as a result of higher salaries and benefits. Transmission system gas consumption cost increased OPEX by RON 56.8m, mainly due to the average purchase price being higher by RON 88.5/MWh compared to the same period last year, with a negative influence of RON 53.2m.

As the revenue grew faster than the costs, the Company recorded an EBITDA of RON 421.8m, an increase of 29.5% YoY. This would imply an EBITDA margin of 38%, an increase of 3.9 p.p. YoY. Financial income increased by almost 2.8x to RON 371.2m. This was mainly due to the update of the value of regulated assets with the inflation rate for 9M 2022, and revenue from shareholdings recorded following the reduction in Eurotransgaz’s share capital of EUR 13.2m, which was received in Q1 2022. Meanwhile, financial cost increased by over 4.2x to RON 143.8m, mainly based on the cost of financial fixed assets transferred. This would also mean that the net financial result amounted to RON 227.5m, an increase of over 2.3x YoY.

Due to the positive revenue and profitability developments described above, the net income to majority amounted to RON 269.7m, an increase of 155% YoY. This would also mean that the net profit margin improved significantly, by 13.3 p.p. to 24.3%.

Transgaz key financials (9M 2022 vs. 9M 2021, RONm)

Source: Transgaz, InterCapital Research