Valuations of electricity distribution and retail companies in an emerging market

Abstract

Purpose This paper is aimed to evaluate recently privatized 18 electricity distribution and retail companies, using the data and conditions at the time they were privatized. The main hypothesis of the study is that most of the privatized companies in this research are underpriced similar to previous experiences in developed and emerging economies. Design/methodology/approach Values of the companies are calculated considering the formal procedures of Turkish energy authorities. These companies are valued under the base, moderate and extreme scenarios created from different sets of assumptions considering conditions and existing data at the time they were privatized. Discounted cash flows (DCF) methodology is used in the estimations. The market prices obtained in their privatization tenders are compared with those theoretically calculated values (intrinsic prices). Findings The findings reject the hypothesis and indicate an overpricing in general in the privatizations of Turkey. Even the extreme scenario which gives the highest intrinsic values supports the findings. Research limitations/implications Research is limited with 18 regional electricity distribution company in Turkey. Originality/value The paper is one of the initial empirical studies on the valuation of energy companies using DCF methodology in an emerging market.