Jersey Electricity — Managing transition well

Jersey Electricity (LSE: JEL)

Last close As at 20/05/2024

GBP4.53

−2.00 (−0.44%)

Market capitalisation

GBP53m

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Research: Industrials

Jersey Electricity — Managing transition well

Jersey Electricity (JEL) continues to deliver steady 5% dividend growth, while managing consumer tariffs amid turbulent energy markets. Forward energy purchases have helped protect JEL and Jersey consumers from volatile wholesale markets over the last year, but this protection will decline from FY24. JEL should benefit from Jersey’s carbon-neutral goals, which will see increased electrification of the island, notably due to the displacement of carbon-intensive heating and transport with low-carbon energy purchased via subsea cables. We see the almost flat unit demand of recent years rising to a 2% CAGR through to 2030.

Written by

Andrew Keen

MD - Head of Content, Energy & Resources, Industrials

Industrials

Jersey Electricity

Company outlook

Utilities

18 September 2023

Price

450p

Market cap

£138m

Net cash (£m) at 31 March 2023, after deducting long-term IFRS 16 lease liabilities of £3.3m

13.5

Shares in issue

30.6m

Free float

38%

Code

JEL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.1)

(6.4)

(15.9)

Rel (local)

(1.1)

(7.1)

(19.7)

52-week high/low

555p

432p

Business description

Jersey Electricity is a vertically integrated power utility dealing in the importation, generation, transmission and distribution of electricity to Jersey. It also operates businesses in retail, property and business services on the island.

Next events

FY23 results announcement

20 December 2023

Analysts

Andrew Keen

+44 (0)20 3077 5700

Harry Kilby

+44 (0)20 3077 5700

Jersey Electricity is a research client of Edison Investment Research Limited

Jersey Electricity (JEL) continues to deliver steady 5% dividend growth, while managing consumer tariffs amid turbulent energy markets. Forward energy purchases have helped protect JEL and Jersey consumers from volatile wholesale markets over the last year, but this protection will decline from FY24. JEL should benefit from Jersey’s carbon-neutral goals, which will see increased electrification of the island, notably due to the displacement of carbon-intensive heating and transport with low-carbon energy purchased via subsea cables. We see the almost flat unit demand of recent years rising to a 2% CAGR through to 2030.

Managing transition well

Year end

Revenue (£m)

EBIT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

09/21

118.6

16.3

38.8

17.4

10.3

3.2

09/22

117.4

10.9

23.8

18.4

19.5

3.5

09/23e

125.7

11.9

24.3

19.5

12.0

4.5

09/24e

138.9

14.3

32.9

20.6

13.1

4.8

Note: *EBIT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

No need for government subsidy

Unlike the UK, where energy providers have seen government intervention and consumer subsidies, JEL has largely protected consumers from significant retail price rises. This is despite significant volatility in French wholesale pricing (where JEL sources its power) in the past year, resulting from French nuclear outages and the Russian invasion of Ukraine. JEL raised consumer tariffs by 5% in July 2022 and January 2023 and in July announced there will be a further 12% rise in January 2024. Consumer tariffs remain approximately half the levels of the UK mainland.

H123 results strong due to one-off gain

H123 profit was up 34% to £10.3m, but this includes a £3.6m one-off gain due to a rebate of past energy costs from French network operator RTE (excluding this, operating profit was down 12% from £7.7m to £6.7m). Forward price hedging will decline from FY24, which introduces some uncertainty for consumer tariffs, but JEL earns a regulated return on assets (6–7%) and so is relatively immune to inflation. It has a healthy balance sheet (-1.0x net debt/EBITDA), so has options in the next two years to manage the transition to lower forward purchasing (either by reinstating forward buying if prices fall or managing consumer tariffs).

Valuation: Unwarranted discount

We have raised our 2024–25 revenue estimates by c 5% to reflect upward pressure on tariffs, but trimmed earnings by c 3% due to general inflationary pressures and a move towards the lower end of the regulated return range, as JEL transitions to less forward price protection. We have reduced our discounted cash flow and sum-of-the-parts (DCF/SOTP) based valuation from 800p to 722p to reflect earnings changes, but this is well above JEL’s stock price of 432p. JEL offers a 4.5% dividend yield, a very strong net cash balance sheet and a shift towards underlying end-use growth due to decarbonisation. Its valuation remains modest (13.0x P/E in FY24e) relative to peers (16.0x).

Investment summary

Electricity supplier to Jersey

Jersey Electricity (JEL) is the sole supplier of electricity to the island of Jersey. The electricity business is responsible for generating around 75% of group revenues and operating profits. JEL also operates a range of other businesses including property rental, retail and business services. The Government of Jersey (GoJ) remains the largest shareholder, with 62% of the ordinary share capital and 86.4% of the voting rights. JEL’s core objective is to supply Jersey with secure, affordable and sustainable electricity.

JEL sources its electricity principally from undersea cables from France (Jersey is 12 nautical miles off the coast of France). In H123, these cables account for 96% of energy delivered to customers, with an energy to waste plant owned by the GoJ generating the remaining 4%. A small proportion of overall energy (0.4%) comes from a traditional oil-fired plant that is run during testing regimes and solar generation.

Although JEL carries out a range of other activities, the dominance of energy means the key driver of earnings is the spread between wholesale power prices and consumer tariffs. It must therefore balance two key factors:

Supply of electricity through euro-dominated purchase contracts with ‎Électricité de France (EDF): JEL buys electricity under a long-term contract (which runs until 2027) with a mixture of fixed and capped pricing, discussed in this note.

Tariffs to consumers: JEL has a self-regulated rate of return of 6–7% on its applicable assets, so consumers are ultimately exposed to changes in French wholesale electricity prices. JEL needs to balance the rate changes to consumer tariffs (which are very low) with the rolling off of fixed-rate contracts in FY25 (although around one-third of 2025–27 rates are hedged at largely fixed euro-denominated prices).

Due to the self-regulated returns nature of the energy business, long-run profitability growth is partly due to volume growth in energy and margin expansion in the other businesses. In energy, we forecast that units sold will grow at a CAGR of 2% from FY24 to FY30, from flat demand growth in recent years. This is due to our assumption that decarbonising the economy will see electricity demand grow (in the displacement of hydrocarbon heating and other use such as electric vehicles, EVs) and this will offset efficiency gains.

In our view, JEL is an attractive stock to investors for a variety of reasons. As it earns a self-regulated return on assets over the longer term, it ultimately passes power price changes and also general inflationary cost pressures for its non-power costs through to consumer tariffs. It has a strong balance sheet, is attractively priced, has a progressive dividend and is set to benefit structurally from ongoing power demand growth due to decarbonisation policies. We project net cash/EBITDA of 1.0x by the end of FY23 (ie a positive net cash position equal to EBITDA), helped by a £3.6m rebate from RTE. This could enable higher capital returns, but we see this as a peak, with net cash/EBITDA slowly easing back to 0.8x over the next two years, and we expect JEL to maintain a robust balance sheet through the uncertainty of wholesale tariff purchase arrangements from FY25. JEL could also choose to accelerate capital spending for the energy transition.

In a rising interest rate environment, utility companies with relatively fixed or regulated returns can underperform the broader market. JEL seems to have unjustifiably underperformed many of its peers over the past six months. It is trading on an FY23e P/E of 13.0x and EV/EBITDA of 4.7x (relatively low due to the positive net cash position). Allowing for 5% dividend growth in FY23, JEL offers a prospective dividend yield of 4.5% and should be able to grow this by c 5% per year.

Sensitivities

Regulation: JEL is a majority government-owned and self-regulated utility. While we assume that returns in its energy business are slightly below the regulated target of 6–7% return on assets on a five-year rolling basis in the next few years, it is possible that returns are held lower due to general political pressure.

Interconnector failure: failure of one or more of the interconnectors could require the use of on-island generation. This would increase both greenhouse gas emissions and costs to JEL. Under current regulations, JEL would be free to recoup the additional costs, but could be constrained from doing so by political sensitivities.

Foreign exchange rates/wholesale pricing: the impact of higher French wholesale prices and weaker sterling versus the euro increases electricity purchase costs for JEL. Once again, although it can recoup additional costs from customers by raising tariffs, this could invite additional political scrutiny. JEL’s prices remain well below EU-15 averages.

We have updated our earnings estimates to incorporate FY22 and H123 results, as well as revising our forecasts from these changed levels. Volumes of electricity sold in FY22 were slightly lower than we forecast (due to a mild winter, slower cannabis industry sales and a reduction in home working post pandemic), but were somewhat offset by higher prices (which also reflect higher input costs of power purchased). Inflation of non-power costs also led to EBIT and EPS results that were lower than we forecast. We had forecast a 1.3% rise in units sold in FY23, but have revised this to a 0.5% contraction (H1 volumes were 1% lower year-on-year). We remain of the view that the growth of end-use demand for electricity due to decarbonisation will accelerate, but we have pushed this acceleration out slightly. Our revenue forecasts are similar to our previous estimates, but they are driven more by tariff pass-through than unit volume growth. As such, we have revised down both earnings and EPS.

Exhibit 1: Changes to forecasts

Revenue (£m)

EBIT* (£m)

EPS* (p)

DPS (p/share)

Old

New

% change

Old

New

% change

Old

New

% change

Old

New

% change

FY22**

118

117

-0.9

12.5

10.9

-12.8

28.4

27.2

-4.2

18.3

18.4

0.5

FY23e

127

126

-0.8

16.4

11.9

-27.4

38.4

24.3

-36.7

19.2

19.5

1.6

FY24e

-

139

-

-

14.3

-

-

32.9

-

-

20.6

-

Source: Jersey Electricity and Edison Investment Research. Note: *EBIT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **For FY22, ‘old’ is our last published forecasts, ‘new’ is reported actual results for FY22.

Regulatory and policy environment

Jersey is an island with 46.2 square miles of landmass. It has a population of around 111,000 and its own financial, legal and judiciary systems. Its constitutional relationship is with the British Crown but it is not part of the United Kingdom. The financial services industry (with sterling as its local currency) forms a large part of its economy. Jersey sets its own utility regulations, climate targets and corporate taxation regulations. This backdrop, plus the majority ownership of JEL by the GoJ, means that JEL’s growth prospects and strategy need to be considered in this specific context. JEL has more than 52,000 business and residential customers.

JEL operates on a self-regulated basis with two self-imposed regulatory targets:

A return of 6–7% (pre-tax and interest) on its energy business (operating fixed assets net of customer contributions) on a rolling five-year basis.

Ensuring its tariffs remain within ±10% of the EU-15 average (inclusive of all taxes).

JEL is able to manage its returns through consumer tariff changes. It imports c 95% of its electricity from France through EDF, so a sustained upward movement in French wholesale prices and/or a deterioration in the foreign exchange rate would require JEL to raise tariffs to preserve its rate of return. Naturally, managing the rate of change, the relative price of electricity for consumers and foreign exchange rates (it buys electricity in euros) are all considerations that make returns less straightforward. JEL’s 15-year agreement with EDF runs until the end of FY27.

In terms of regulated returns, the return on energy assets in FY22 was 4.2%, down from 6.0% in FY21 and 6.8% in FY20. On a rolling five-year basis, regulated returns were 6.2% at the end of FY22 and have tended to remain within the 6–7% target range, although they were slightly below this range in 2015 and 2016 (5.8% and 5.5% respectively). Similarly, we expect regulated returns to slip back marginally below 6% over the next few years on a rolling basis, due to rising wholesale power input costs as a result of fixed price hedges rolling off.

Exhibit 2: JEL energy business – operating profit (left-hand side) and estimated return on assets

Source: Edison Investment Research, JEL data

In H123, JEL received a £3.6m rebate from RTE regarding payments made by JEL in 2022. We have not included this gain (classified as a non-recurring item) in our regulated return estimates in 2023, as it is a one-off and unexpected refund of past electricity purchasing costs, although it would be allowable within overall return limits according to our estimates (4.7% in FY22 excluding this rebate, 5.7% including this rebate). RTE awarded the rebate to JEL as part of a regulatory decision due to volatility in the energy marketplace during 2022.

Electricity tariff assumptions

As stated above, JEL’s self-imposed regulatory goal is to ensure its tariffs remain within ±10% of the EU-15 average (inclusive of all taxes). JEL aims to smooth tariff rises in the context of being more exposed to electricity prices in 2025. Based on our long-term wholesale electricity price assumptions, we expect additional tariff rises of 3.5% in real terms, but this does assume an easing and stability in long-term prices, hence JEL must consider the amount of risk it presents to its customers.

In June 2023, JEL announced that it will freeze its current tariff prices until the end of 2023. However, from January 2024 a 12% increase in tariff prices will be necessary to maintain prices in line with rising costs as a result of the volatility of international energy prices. The rise is in line with the All Items Jersey Retail Prices Index of 12.7% and overall will add c £3 per week to the average domestic electricity bill of around £1,200 per year. On a fiscal year basis, we believe this corresponds to tariff rises of 7.2% in FY23 and 10.3% in FY24, and we have allowed for these increases in nominal terms in our modelling.

Management stated that although JEL has a strong contract with a favourable hedge position that has generally sheltered Jersey residents greatly from the turmoil in the European energy market over the last 18 months, it is not fully hedged nor completely immune to this volatility. Despite an easing in European wholesale energy markets in recent months, these prices remain high in comparison to JEL’s current import costs. Additionally, the attractive hedges in place until 2025 that provide stability are on a rising cost trajectory, which means that the underlying costs that JEL needs to pass on to consumers are also rising. The consequences of the above factors, together with general inflationary pressures, were the reasons JEL gave for the tariff increase at the start of 2024.

In comparison with other jurisdictions, JEL estimates that by the time the tariff increase is supplemented, Jersey’s standard tariff has recently been roughly half of the equivalent UK tariff. Other island territories adjacent to the UK are also raising consumer tariffs, for example Manx Utilities, which is based on the Isle of Man, implemented a 34% rise in electricity prices between 1 April and 1 July 2023, while Guernsey Electricity has announced a 13% rise from 1 July 2023.

Under self-regulatory aims, JEL must also ensure that its tariffs remain within ±10% of the EU-15 average (inclusive of all taxes). Exhibit 3 shows EU-15 retail electricity prices for H222, which are the latest available data from Eurostat. We use JEL’s currently advertised standard tariff domestic price of 17.99p/kWh (or 21.05c/kWh), which is 18% below the EU median price for H222.

Exhibit 3: JEL’s standard domestic tariff (inclusive of taxes) versus EU-15 (c/kWh) for H222*

Source: Edison Investment Research, Eurostat, JEL. Note: *Latest available data. United Kingdom latest 2023 data.

Growth from decarbonisation

A rise in volumes through JEL’s existing infrastructure due to decarbonisation could increase returns and help mitigate tariff rises. JEL’s volumes of power delivered to consumers have been relatively static in recent years, but we believe decarbonisation efforts could lead to structural growth of c 2%.

The publication of the GoJ’s Carbon Neutral Roadmap in April 2022 set out milestone and policy changes to enable Jersey to be carbon neutral by 2030. This has put greater emphasis on growth and provided additional external pressure on JEL, generating significant opportunities for economic growth. The high-emitting sectors of heating and road transport, which together represent more than 80% of overall carbon emissions, are the areas JEL is targeting the most. JEL plans to convert c 20,000 fossil fuel boilers to electric heating and implement large-scale overnight EV charging. JEL 30has been reassured by the GoJ that the first £23m of government funding from the Climate Emergency Fund is secure for the first four years of the roadmap.

Heating

Two of the key policies surrounding heating in the Carbon Neutral Roadmap are:

Providing a subsidy to enable both households and commercial businesses to transition to low-carbon heating systems. The scheme will run from 2022 until 2025.

Prohibiting new fossil fuel boilers being installed in any property after 1 January 2026.

JEL’s Energy Solutions team, which was formed seven years ago and was designed specifically to develop customer propositions to deliver growth through fuel switching, has continued to grow its organisational capability. Although unit sales fell slightly to 613m kilowatt hours in FY22 from 639m in FY21, in FY22 JEL exceeded its internal target of domestic fuel switches for the third year in a row, converting 325 premises to electric boilers.

Electric transport

Key policies in the Carbon Neutral Roadmap relating to transport are as follows:

Subsidise the cost of an EV at the point that it is first registered on the island (for both new and imported second-hand vehicles).

Work with JEL to agree a scale-up plan for EV charging infrastructure, which:

subsidises the cost of domestic electric charging infrastructure;

continues to deliver off-street EV charging points across the island; and

improves the visibility of charger availability across the island.

Exclude zero carbon vehicles from Vehicle Emissions Duty and increase vehicle emissions duty on all domestic petrol and diesel vehicles each year until at least 2030.

Bring into force legislation that prohibits the importation and registration of petrol and diesel cars and small vans that are new to the island in 2030 at the latest and seek to extend this to other categories of vehicle at subsequent dates between 2030 and 2040.

The decarbonisation and transition of road transport to electric power is vital for JEL’s net-zero goal, as Jersey’s transport emits c 44% of the island’s emissions. Some of the key areas on which JEL is focusing for growth in this space include public and home EV charging points. With EVs becoming ever more popular and as the uptake in electric transport grows, JEL’s strategy is to ensure that its networks are ready to meet and can cope with the increase in electricity demand while having a wide range of infrastructure already in place.

At the end of FY22, JEL had expanded the number of its public charging networks to 109 charging points in service, up from 95 at the end of FY21, which is twice the UK average per capita. This includes the Channel Islands’ first ultra-rapid charger at JEL’s Powerhouse headquarters.

In May 2022, JEL launched its innovative, all-inclusive home EV charging subscription service, Easycharge. The service provides customers with charger installation, maintenance and overnight off-peak electricity for a fixed monthly subscription. The Easycharge service not only supports customers by offering affordable and more convenient charging, but also enables JEL to better manage load and avoid higher network costs through moving load from peak times to off-peak overnight when there is spare capacity and energy costs are cheaper. The three subscription options are £30 a month for single EV households, £45 a month for multi-EV homes and £85 a month for commercial or high-mileage users. The total number of EVs registered in Jersey at the end of 2022 was 1,688, which was c 25% higher (427 vehicles) than at the end of 2021.

As can be seen in Exhibit 4, the expected percentage of new EV sales of total new vehicle sales must and will continue to increase significantly in the run-up to 2030. This is in line with GoJ policies surrounding transport to successfully achieve net-zero by 2050. This therefore shows how the EV market promises to be a great growth area for JEL, especially the domestic charging market.

Exhibit 4: New EV sales as a percentage of new vehicle sales

Source: Edison Investment Research, Government of Jersey data

The EV percentage of total registered vehicles within Jersey (parc), however, needs to increase faster than the rate that it is currently forecast to grow by if carbon neutrality is to be reached by 2030.

Exhibit 5: EV % total parc

Source: Edison Investment Research, Government of Jersey data

Renewables

Solar photovoltaics (PV) is another area that offers ‘potential for growth. Through a combination of the global energy crisis and the GoJ’s Carbon Neutral Roadmap to net-zero, the island of Jersey is more than ever focusing on energy sovereignty. JEL has continued the progress of its utility- and commercial-scale solar PV with a 4MWp site in the Parish of St Clement, which has now been given the go-ahead for construction, and reaching a landowner agreement for a further 3MWp side on the north coast at Sorel. In March 2022 JEL installed 1,500 solar panels on the roof of the Albert Bartlett potato processing plant, providing up to 612kWp, with the array being the largest in the Channel Islands. The sites mentioned above, and two other ground-based sites, could bring on-island generation to 15MWp. With 90% of the company’s stakeholders supporting the use of solar panels for expansion and 23% of homeowners stating that they are likely to consider solar panels within the next 12 months, there are huge growth opportunities, in both domestic and large-scale solar, with the aim of reaching net-zero.

Looking slightly further into the future, JEL has held constructive conversations with the new minister for the environment and is continuing to research and assess the use of offshore wind. The GoJ and the Bridging Island Plan both agreed that an offshore wind farm could bring large strategic value to Jersey. An offshore wind project could not only bring greater energy independence to Jersey, but, if the project was at scale, provide more energy than the island needs. This therefore provides a commercial opportunity allowing Jersey to become a net exporter of energy.

Wholesale electricity purchase environment

JEL buys electricity from EDF, and we understand that the pricing structure is split into two parts, approximately one-third fixed and two-thirds market-based pricing. In addition, there is a transport cost payable to RTE. We believe JEL has a capped price element in FY23 and FY24 with EDF. While the caps are not explicitly published, we assume that they are similar to wholesale prices before the energy crisis in H121, which were €50–55/MWh on a two- to three-year forward basis. This has insulated JEL customers from a full pass-through of wholesale energy prices, which have been extremely volatile over the past 18 months (see Exhibit 6 below), principally due to the conflict in Ukraine, and the subsequent impacts on natural gas markets and prices. JEL also has around one-third of its expected FY25–27 requirements at largely fixed prices.

Wholesale prices have eased from peak levels but are very volatile and still relatively high (spot prices have fluctuated between €50/MWh and €120/MWh in recent months and three-year forward pricing is in the region of €100–110/MWh after falling from peaks of €390/MWh in September 2022). We assume a long-term price of €80/MWh (real) from FY25 (up from €70/MWh in our last review, partly due to inflation and partly due to strength in forward energy prices).

The longer-term equilibrium price is naturally highly uncertain, but we have modelled retail prices and imported energy costs to reflect the self-regulated return on energy assets of 6–7%. We estimate that tariff increases of 5% in FY24 and 3.5% in FY25 (in real terms from 2023 average tariff rates) are required by FY25, to maintain return on capital for FY25 in the 6–7% range.

Exhibit 6: France – wholesale electricity price (€/MWh)

Source: Edison Investment Research, Bloomberg data

Hedging of electricity and foreign exchange, and customer tariffs

JEL’s focus is on delivering secure, low-carbon electricity supplies while maintaining relative stability in its customer tariffs, despite the recent volatility that has been seen in both the European wholesale electricity and foreign exchange markets.

JEL has a power purchase agreement with EDF in France and as of 30 September 2022, the company’s import prices, but not volumes, were substantially fixed for 2023. The group originally entered a 10-year framework with EDF in January 2013; the framework has a commitment to procure around 35% of expected volume requirements at known prices with the remainder of the requirements being decided by a market pricing mechanism, with no volume commitment. The agreement was extended in 2017 a further five years past its original end date in 2022 to 2027. This contract is a combination of a fixed-price component with the ability to fix the price of future purchases over a rolling three-year period based on a market-related mechanism linked to the EEX European Futures Exchange.

The company’s electricity purchases through this agreement are materially but not fully price capped for calendar years 2023 and 2024. JEL also has roughly one-third of its expected 2025–27 requirements hedged at largely fixed pricing. As these contracts are denominated in euros, the company enters forward foreign currency contracts, on a three-year rolling basis, to reduce the volatility of costs and to aid tariff planning.

The average euro/sterling rate underpinning JEL’s electricity purchasing price during FY22, as a result of its hedging programme, was €1.13/£, and the applicable spot rate during the same period was €1.18/£ against €1.15/£ during the FY21.

Capex and major investments

JEL aims to minimise outages (which are relatively low compared to the UK), and the key risk is the capacity of the undersea power cables. In May 2013, JEL and Gurnsey Electricity Limited signed an agreement to share the cost and capacity of the £70m Normandie 3 (N3) project. It also provided for the cost and capacity sharing of the £30m Normandie 1 (N1) 100MW undersea cable which was installed in 2016, as a replacement of the original EDF1 (55MW) interconnector between Jersey and France that failed in June 2012. When combined with the existing N2 and N3 cables which as of December 2014 operate in parallel, N1 gave the Channel Islands access to 245MW of import capacity.

Following the completion of the 75MVA 90/33kV transformer at La Collette, work on a new 90/11kV transformer at Queen’s Road became part of the long-term development plan for JEL’s 90kV network. This project will allow the eventual decarbonisation of the ageing 33kV cable interconnectors between Queen’s Road and La Collette, providing further options to enhance supply security and facilitate the load growth that net-zero will bring, and allowing more generation plants to be installed at La Collette.

Further investment will be necessary for JEL to be able to meet the increase in peak demand and annual consumption that net-zero will bring. Additional capex for the decarbonisation of Jersey (mentioned above) will be needed to help orchestrate and smooth the transition to net-zero. For example, capex will be needed for: the build out of the island’s EV infrastructure and charging stations and the increase in solar PV. Our forecast (see Exhibit 11) is for capex to rise to 1.8x depreciation in FY24, towards the top of historical ranges, but not at record levels. In its FY22 annual report, JEL outlines that its five-year capital spending approved by directors was £94m, or £18.8m/year on average.

Other business

JEL’s retail business (c 14% of overall revenue for H123), also known as The Powerhouse, is Jersey’s largest retailer of domestic electrical appliances. Some of the products the store offers include home computing, smart tech, mobile phones and electric transport, all both in-store and online. Services range from delivery to professional installation and servicing of its products. Year-on-year revenue in H123 for the Powerhouse retail business increased by 5% to £10m (H122: £9.5m), although profits maintained a similar level at £0.7m. The segment’s EBIT margin was 6.7% in the period, similar to the 6.9% seen in H122.

The company’s property portfolio (c 2% of overall revenue for H123) consists of business units and private dwellings. The portfolio is comprised of the Powerhouse Retail Park as well as around 30 residential properties, which were originally built to house employees. Some of the tenants now include B&Q, telecommunication company Sure (Jersey) and a large modern medical centre. The portfolio’s profit of £0.8m for H123 was £0.1m higher than H122, due to a combination of higher rental and slightly lower maintenance costs. Revenues for H123 were up 4.5% year-on-year, with the EBIT margin at 51% for the period, up from 48% in H122.

Jersey Electricity Building Services (JEBS) (c 2% of overall revenue for H123) offers a range of building and maintenance services to both domestic and commercial customers including electric heating and heat pump installations, street lighting and EV charging infrastructure. H123 saw JEBS’s revenue fall 1% year-on-year, with its profit breaking even.

JEL’s remaining business operations consist of Jersey Energy (a consultancy offering mechanical electrical and public health services for construction projects, business and buildings) (c 3% of overall revenue for H123), Energy Solutions (which advises on domestic and commercial low-carbon electrical technologies, fuel switching from gas and oil and EV charging), Jendev (an in-house software configuration business focusing on developing and implementing solutions for the utility industry) and Jersey Deep Freeze (which installs and maintains refrigeration and other catering equipment). Across these four businesses, revenues for H123 fell 1.4% year-on-year, with profits dropping to £0.2m in H123 from £0.3m in H122. The EBIT margin for H123 was 15.4%, up from 14.1% in H122.

Exhibit 7: Revenue forecast (£000’s)

Exhibit 8: EBIT forecast (£000’s)

Source: Edison Investment Research, JEL accounts

Source: Edison Investment Research, JEL accounts

Exhibit 7: Revenue forecast (£000’s)

Source: Edison Investment Research, JEL accounts

Exhibit 8: EBIT forecast (£000’s)

Source: Edison Investment Research, JEL accounts

For the period FY22–25 including our forecasts for FY23–25, we see a 5.3% year-on-year average growth in revenue and a 2.7% average year-on-year growth for recurring EBIT for JEL’s energy business. The steady growth in revenue for the energy business is due to the steady tariff increases JEL is implementing between FY22 and FY25 (5% in June 2022, 5% in January 2023, 12% in January 2023), while the majority of its energy requirements are hedged until 2025.

Valuation

We value JEL using the average of a 10-year DCF (675p) and our SOTP (769p) for an overall valuation of 722p. This is down from 800p in our last report, principally due to a reduction in earnings. We have raised our long-term electricity price from €70/MWH to €80/MWH to reflect our view that volatility is likely to continue and raise long-term prices.

For our DCF valuation, we assume a WACC of 6.0%, based on a beta of 0.9x, cost of equity of 6.3% and cost of debt of 4.5% (with total debt at c 15% of capital), unchanged from previously. Our valuation assumes a terminal growth rate (TGR) of 2% (unchanged) and reflects of forecasts of underlying demand growth due to decarbonising the Jersey economy (electricity displacing other fuels). We outline the sensitivity of our DCF to our assumptions in WACC and TGR in Exhibit 9.

Exhibit 9: Sensitivities of DCF valuation to WACC and terminal growth rate

Share valuation (p)

WACC

4.0%

5.0%

6.0%

7.0%

8.0%

Terminal growth rate

0.0%

742

602

509

443

393

0.5%

822

649

539

463

407

1.0%

928

707

576

487

424

1.5%

1077

783

620

516

444

2.0%

1300

883

675

550

467

2.5%

1671

1024

746

592

494

Source: Edison Investment Research

Our SOTP valuation values JEL’s regulatory assets at £177m based on their book value and assumes JEL earns a return on these assets equal to its cost of capital(unchanged from previously). We also value the property business (rental properties owned by JEL) using a balance sheet carrying value. For the other minor assets, we apply a 10x earnings multiple.

Exhibit 10: SOTP valuation

Components

£m

p/share

Comments

Electricity assets

177

577

Regulated assets

Property

29

94

Book value

Other businesses:

16

53

Enterprise value

222

724

Adjustment:

Net cash/(debt)

14

44

Other assets/(liabilities)

0

0

Adjustments

14

44

Equity value

236

769

Source: Edison Investment Research

As a cross-check, we compare the P/E multiples of our valuation against the appropriate peers (focused on the grid and energy transmission). These are National Grid (UK), Red Electrica Corporacion (Spain) and Terna Rete Electtrica Nazionale (Italy). The forward (2024) P/E multiple for this peer group is currently 16x. Applying this to our FY24 EPS of 32.9p results in a valuation of 526p, which is lower than our DCF (675p) but still significantly above the current stock price. Due to its relatively smaller scale and specific decarbonisation goals, JEL arguably has higher growth prospects than its peers.

Financials

Profitability and returns: our forecasts for FY23 and FY24 assume that JEL’s core energy business aims to deliver profitability within the range of the targeted return of 6–7%. For FY22 the reported return on energy assets was 4.2%, with a five-year rolling return of 6.2%. Profit in the energy business totalled £7.5m in FY22, which was lower than the £10.7m achieved in FY21. This decrease was largely due to lower unit sales volume in 2022. We forecast a return of 4.7% in FY23, which includes the 5% tariff rise imposed in January 2023. This suggests an increase in profits for FY23 (forecast recurring operating profit of £10m vs £7.5m in FY22). We forecast that there will be a further increase to 5.9% in the return on energy assets in FY24 due to the announced 12% tariff increase in January.

Through FY25–27, where JEL has roughly one-third of its requirements hedged at largely fixed prices, we forecast returns of 6.0%, 6.2% and 6.5% respectively, which assumes a further c 5% tariff increase in FY25 (in real terms from 2023 average tariff rates) and 3.5% in real terms in FY25, to maintain return on capital for FY26/27 in the 6–7% range.

Capex: JEL’s capital expenditure for FY22 was c £11.3m. The increase in capex for FY23 and FY24 includes an estimated £10m per year investment in a new gas turbine plus an estimated £4m investment in a new transformer at Queen’s Road, as well as any additional expenditure for further growth and investment following the publication of GoJ Carbon Neutral Roadmap.

Exhibit 11: Capital expenditure and depreciation

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Capex (£m)

32.5

16.8

32.4

15.1

14.9

13.9

11.3

9.3

11.3

15.1

20.1

Depreciation (£m)

8.3

9.9

10.3

10.7

11.2

11.6

11.4

10.9

11.0

11.1

11.4

Capex/depreciation

3.9x

1.7x

3.1x

1.4x

1.3x

1.2x

1.0x

0.9x

1.0x

1.4x

1.8x

Source: JEL, Edison Investment Research

Pensions: JEL has a defined benefit pension scheme on its balance sheet, which was closed to new members in 2013. The surplus at 31 March 2023 was £30.1m, up from £26.4m at 30 September 2022 and £22m at 31 March 2022. Assets in the scheme rose by £8m to £121m against a liability increase of £5m to £91m (driven by a rise in discount rate assumptions from 5.2% from 4.7% a year earlier). Unlike many UK schemes, the JEL pension is not funded to pay mandatory annual rises post-retirement. In H1 FY23 the pension scheme trustees asked JEL to consider granting a 3% rise to pensions given the level of scheme surplus and the increase in the cost of living. This was agreed in March and, although funded by the scheme rather than the company, it generated a £1.4m charge against the income statement in that half. Given the unique nature of the pension arrangements (a growing surplus but with cost-of-living adjustments made on an ex-gratia basis) and a growing interest rate environment, we have removed the pension surplus from our valuation of enterprise value of JEL. While the pension assets and liabilities both remain on JEL’s balance sheet, in a high interest rate (and cost of living) environment, liabilities for further increases on an ex-gratia payment basis cannot be excluded. We have previously included an allowance for some pension surplus in our valuation, but believe a cautious approach is to exclude this surplus from our valuation at present.

Tax: for tax payable (P&L), we assume an effective tax rate of 20% for FY23 and FY24 (FY22: 20%).

Dividends: our forecasts assume a c 5% increase in the DPS for FY23 and FY24 (19.5p and 20.6p), with a cash impact from payments of £5.8m (FY22 final plus FY23 interim dividend) and £6.1m (FY23 final and FY24 interim dividend). The DPS is forecast to be substantially covered by earnings: 1.4x in FY23 and 1.9x in FY24.

Cash flow and balance sheet: in the absence of any repayment of outstanding long-term debt of £30m (which expires in 2034 and 2039) or a special dividend, we forecast that cash and cash equivalents will increase to £56.2m in FY23 (FY22: £47.4m up £4.3m from FY21). We also forecast that cash and cash equivalents will slightly increase in FY24 to £58.7m.

Exhibit 12: Financial summary

£'000s

2019

2020

2021

2022

2023e

2024e

Year end 30 September

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

110,709

111,747

118,608

117,421

125,697

138,877

Cost of Sales

(69,282)

(69,695)

(74,159)

(77,242)

(83,857)

(93,506)

Gross Profit

41,427

42,052

44,449

40,179

41,840

45,371

EBITDA

 

 

26,247

27,516

27,182

21,888

22,966

25,685

Operating Profit (before except.)

 

 

14,643

16,092

16,258

10,886

11,870

14,288

Exceptionals

1,439

115

4,255

(1,020)

3,593

0

Other

0

0

0

1,020

0

0

Operating Profit

16,082

16,207

20,513

10,886

15,463

14,288

Net Interest

(1,262)

(1,377)

(1,428)

(1,305)

(1,463)

(1,469)

Profit Before Tax (norm)

 

 

13,381

14,715

14,830

10,601

10,407

12,819

Profit Before Tax (reported)

 

 

14,820

14,830

19,085

9,581

14,000

12,819

Tax

(2,969)

(3,090)

(2,794)

(2,135)

(2,819)

(2,582)

Profit After Tax (norm)

10,412

11,625

12,036

8,466

7,587

10,238

Profit After Tax (FRS 3)

11,851

11,740

16,291

7,446

11,180

10,238

Average Number of Shares Outstanding (m)

30.6

30.6

30.6

30.6

30.6

30.6

EPS - normalised (p)

 

 

33.7

37.6

38.8

23.8

24.3

32.9

EPS - normalised and fully diluted (p)

 

 

33.7

37.6

38.8

23.8

24.3

32.9

EPS - reported (p)

 

 

38.4

37.9

52.7

27.2

36.0

32.9

Dividend per share (p)

15.7

16.5

17.4

18.4

19.5

20.6

Gross Margin (%)

37.4

37.6

37.5

34.2

33.3

32.7

EBITDA Margin (%)

23.7

24.6

22.9

18.6

18.3

18.5

Operating Margin (before GW and except.) (%)

13.2

14.4

13.7

9.3

9.4

10.3

BALANCE SHEET

Fixed Assets

 

 

249,982

250,966

267,588

278,691

281,084

288,031

Intangible Assets

683

3,378

4,046

4,247

4,628

5,036

Tangible Assets

217,046

217,936

216,550

216,235

219,471

227,234

Investments

32,253

29,652

46,992

58,209

56,985

55,761

Current Assets

 

 

49,125

59,153

68,045

74,987

85,680

87,532

Stocks

6,018

6,028

6,909

7,173

7,679

8,484

Debtors

17,995

15,745

18,000

19,934

21,339

23,576

Cash

24,915

35,520

43,136

47,397

56,180

54,989

Other

197

1,860

0

483

483

483

Current Liabilities

 

 

(20,332)

(21,143)

(22,721)

(23,530)

(25,382)

(27,486)

Creditors

(20,332)

(21,078)

(22,649)

(23,461)

(25,313)

(27,417)

Short term borrowings

0

(65)

(72)

(69)

(69)

(69)

Long Term Liabilities

 

 

(79,231)

(83,037)

(87,471)

(90,774)

(92,547)

(95,372)

Long term borrowings

(30,000)

(32,879)

(33,035)

(33,251)

(33,251)

(33,251)

Other long term liabilities

(49,231)

(50,158)

(54,436)

(57,523)

(59,296)

(62,121)

Net Assets

 

 

199,544

205,939

225,441

239,374

248,835

252,704

CASH FLOW

Operating Cash Flow

 

 

31,401

31,019

26,525

25,762

33,183

28,891

Net Interest

(1,253)

(1,237)

(1,283)

(1,355)

(1,463)

(1,469)

Tax

(2,300)

(2,714)

(2,742)

(3,020)

(2,088)

(2,457)

Capex

(13,940)

(11,259)

(9,318)

(11,320)

(15,077)

(20,053)

Acquisitions/disposals

2

24

6

7

0

0

Financing

(59)

(311)

(557)

(573)

0

0

Dividends

(4,671)

(4,917)

(5,178)

(5,453)

(5,772)

(6,103)

Net Cash Flow

9,180

10,605

7,453

4,048

8,783

(1,191)

Opening net debt/(cash)

 

 

14,265

5,085

(2,576)

(10,029)

(14,077)

(22,860)

HP finance leases initiated

0

(2,944)

0

0

0

0

Other

0

0

0

0

0

(0)

Closing net debt/(cash)

 

 

5,085

(2,576)

(10,029)

(14,077)

(22,860)

(21,669)

Source: Jersey Electricity accounts, Edison Investment Research

Contact details

Revenue by geography

Jersey Electricity
The Powerhouse
PO Box 45
Queen’s Road
St Helier
Jersey JE4 8NY
+44 (0)1534 505460
www.jec.co.uk

Contact details

Jersey Electricity
The Powerhouse
PO Box 45
Queen’s Road
St Helier
Jersey JE4 8NY
+44 (0)1534 505460
www.jec.co.uk

Revenue by geography

Management team

Chairman: Phil Austin

Chief executive: Chris Ambler

Phil Austin became chairman of JEL in February 2019 having served as a non-executive director since 2016. From 1997 to 2001 Mr Austin was deputy CEO of HSBC’s offshore island business and in 2001 became founding CEO of Jersey Finance. In 2006 Mr Austin joined Equity Trust as CEO and since 2009 he has held a number of non-executive positions and is a non-executive of 3i Infrastructure, City Merchants High Yield Trust and Blackstone/GSO Loan Financing.

Mr Ambler has served as chief executive since 2008, having previously held senior positions in the utility and materials sectors. He is a chartered engineer with the Institution of Mechanical Engineers and holds an MBA from Insead. Mr Ambler is a non-executive director of Apax Global Alpha and Foresight Solar Fund.

Finance director: Lynne Fulton

Lynne Fulton joined JEL in spring 2023 working alongside the outgoing Finance Director Martin Magee to enable an effective handover of responsibilities in the summer of 2023. Before joining JEL Lynne was the financial controller of United Utilities Group.

Management team

Chairman: Phil Austin

Phil Austin became chairman of JEL in February 2019 having served as a non-executive director since 2016. From 1997 to 2001 Mr Austin was deputy CEO of HSBC’s offshore island business and in 2001 became founding CEO of Jersey Finance. In 2006 Mr Austin joined Equity Trust as CEO and since 2009 he has held a number of non-executive positions and is a non-executive of 3i Infrastructure, City Merchants High Yield Trust and Blackstone/GSO Loan Financing.

Chief executive: Chris Ambler

Mr Ambler has served as chief executive since 2008, having previously held senior positions in the utility and materials sectors. He is a chartered engineer with the Institution of Mechanical Engineers and holds an MBA from Insead. Mr Ambler is a non-executive director of Apax Global Alpha and Foresight Solar Fund.

Finance director: Lynne Fulton

Lynne Fulton joined JEL in spring 2023 working alongside the outgoing Finance Director Martin Magee to enable an effective handover of responsibilities in the summer of 2023. Before joining JEL Lynne was the financial controller of United Utilities Group.

Principal shareholders – listed shares only* (JEL)

(%)

Huntress (CI) Nominees

17.0

*Explanatory note from page 56 of the FY22 reports and accounts – 62% of the ordinary share capital of the company is owned by the GoJ with the remaining 38% held by around 600 shareholders via a full listing on the London Stock Exchange. Of the holders of listed shares, Huntress (CI) Nominees owns 5.4m (46%) of JEL’s ‘A’ ordinary shares representing 17% of its overall ordinary shares and around 5% of voting rights.


General disclaimer and copyright

This report has been commissioned by Jersey Electricity and prepared and issued by Edison, in consideration of a fee payable by Jersey Electricity. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Jersey Electricity and prepared and issued by Edison, in consideration of a fee payable by Jersey Electricity. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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