Edison Investment Research Limited
London, UK, 4 June 2021
Jersey Electricity (JEL): Modelling of 2030 net zero implications
Jersey Electricity (JEL) has consistently delivered a 5% increase in its DPS and with dividend coverage above 2.0x EPS is well placed financially to produce future returns to shareholders. It has a strong balance sheet and its grid infrastructure is well invested. Electrification of Jersey's heating and transport systems to achieve the government's ambition of net zero carbon emissions by 2030 provides an opportunity for growth. Based on our detailed modelling, we estimate that full electrification of these two areas could increase electricity demand by 477GWh pa (or 477 million units of electricity), representing a 77% increase on the 619m units sold by JEL in FY20.
JEL trades at a discount to our asset-based sum-of-the-parts and DCF valuations. Our overall valuation analysis (based on SOTP and DCF) suggests a share valuation of 785p. We cross-check this with a peer valuation of 794p. The current share price appears modest for a company that offers the prospect of above-inflation increases in DPS, possesses balance sheet flexibility and is well positioned to benefit from decarbonisation initiatives.
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