Tekniska verken i Linkoping AB (publ)

Overview Key strengths Key risks Stable and predictable cash flow from Tekniska verken i Linkoping AB's (TvAB's) natural monopoly in district heating and electricity distribution, representing almost 70% of the company's EBITDA (about Swedish krona [SEK] 1.8 billion, or €160 million) in 2022. Large fuel consumption creates exposure to market prices for biomass and contract structure for waste that TvAB might not be able to pass on to customers, or changes to waste handling in the near term because district heating in Sweden does not set tariffs within a set regulatory framework. Significant headroom under credit metrics, with forecast funds from operations (FFO) to debt above 50%, well above our downside rating threshold of 35%. The company's strategy to increase

...S&P Global Ratings expects credit ratios to remain stable in 2023-2025 despite market challenges, and rating headroom to remain solid. We think that TvAB's business model can navigate the different hurdles in the market, with rising inflation and costs, lower electricity prices, and rising interest rates. Specifically, we expect FFO to debt above 50% in 2023-2025 (versus 63% in 2022). This is well above our downside rating threshold of 35%. Cash flow is supported by stable district heating and electricity distribution operations representing a high share of EBITDA, of almost 70% on average. TvAB also benefits from its diversified operations, with revenue streams from other stable operations such as water and sewage, and waste handling, all with fixed-contract pricing that limits cash flow volatility. The company's exposure to electricity prices stemming from wind and hydro generation are limited, but as it increasingly invests in wind power generation, the contribution from generation is...

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