March 22, 2018 / 9:43 AM / a month ago

UPDATE 1-Terna ups dividend goal in new plan but 2018 outlook knocks shares

(Adds detail, shares, analyst)

MILAN, March 22 (Reuters) - Italian power grid company Terna on Thursday pledged richer shareholder returns and higher investments over the next five years, but its forecast for 2018 core earnings fell short of some investors’ expectations, sending its shares lower.

Terna, one of Europe’s biggest power grid players, makes most of its money from returns set by the regulator designed to improve its domestic transmission business.

The firm, controlled by state lender Cassa Depositi e Prestiti, plans to invest 5.3 billion euros ($6.5 billion) over the period to 2022, up 30 percent on the previous plan.

Most of that will go to resolve congestion on the grid and improve the quality of the service.

The boom in green energy with its intermittent output and the fall in traditional, more centralised thermal production has prompted Terna - like other European transmission operators - to invest more in digital technology and storage systems.

“The objective is the complete integration of renewables and the digitization of infrastructure for greater security and resilience, which will benefit the entire system,” Chief Executive Luigi Ferraris said in a statement.

Rome-based Terna is investing to improve its domestic transmission business, but is also eying opportunities to boost profits outside Italy through acquisitions.

Some 300 million euros of its capital expenditure is meant for international activities.

The group said it would grow dividends by 6 percent on average over the next three years and hand out 75 percent of net profits in the following two years.

Terna, which counts the State Grid of China as one of its largest shareholders, said its earnings before interest, taxes, depreciation and amortisation (EBITDA) would reach around 1.9 billion euros in 2022 from 1.61 billion euros expected this year.

Non-regulated business will contribute around 350 million euros to core earnings over the period, it said.

The stock was down 2.2 percent at 4.64 euros, underperforming a 0.9 percent fall in Milan’s blue-chip index .

A Milan-based analyst said the business plan targets were above his estimates but 2018 guidance was disappointing.

For last year, the power grid firm reported an 8.7 percent rise in net profit and proposed a dividend payout of 22 cents per share, up from 0.206 euros the previous year.

$1 = 0.8093 euros Reporting by Maria Pia Quaglia Editing by Mark Potter

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