PCG 4Q2015 Earnings Note

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Market Price (1/29/2016): $56.00/share; ST-Target: $76/share; NIV: $101/share

PCG: What a difference a year can make

Much of the San Bruno fallout is behind PCG with only the criminal trial pending, which is scheduled to begin March end and 13 counts dismissed leaving only 15. California’s rate restructuring is taking shape with migration towards time of use (TOU) and non-bypassable charges for net energy metering (NEM) customers. 11 of 12 NTSB gas safety recommendations implemented. Regardless, company still has lingering effects including some $565MM-$665MM of non-recurring items that are expected to pass-thru the income statement. PCG may issue between $600MM-$800MM in equity. Capex plan for 2016-2019 brackets the low end with 2015 capex spending while the highend reflects current rate filings. We believe that this is enough to achieve rate base growth of 5%-7% and achieve high single-digit CAGR in AEPS through 2019. We also expect dividend payout ratio to increase starting 2H2016 from the current levels of some 58% closer towards 60%-65%. Beyond the current pale, PG&E’s near-term investment program should drive shareholder value, but in the LT opportunities may be more limited, in our opinion.

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