How the industry views itself - June 2020 edition
15 questions - 6 months later We asked European utilities 15 questions on the outlook for investments, growth, strategy and risks and compared the responses to those of the previous editions of our semi-annual survey. More opportunities than risks Although utilities remain vigilant around political intervention, the political risk is seen as roughly unchanged despite the pandemic and the recession. Indeed, utilities do not see possible follow-on COVID-19 waves as a major risk to their financial health, and in our open-ended question about the biggest surprise from the COVID-19 crisis, utilities focused on the fact that new investment opportunities have emerged. Focus on investment Organic and inorganic capex is where utilities seem to want to spend any excess cash flow. Network returns are seen more favourably than 6 months ago and so are broader returns on capex for the coming years. Most of this investment seems to be focused on Europe with the Green Deal seen as likely to materially accelerate and improve investment opportunities and returns. When looking at assets, perhaps contrary to equity investors'' expectations, electricity networks dominate preferences and offshore wind is losing ground to solar and onshore. Attitudes towards competition, especially in customer facing businesses, have somewhat improved. Views on the power market are pointing towards a tightening. Exane BNPP thesis Since Q4 ''18 the themes of Japanification, green capex and ESG investor flows have driven our positive stance on the sector. This survey confirms, in our view, these themes. Although market expectations are higher into the Q2 result season vs Q1, possibly creating more mixed near term share price moves, the medium-term outlook is strengthening and in our view that is not reflected in the sector''s valuation. We still view the energy transition facilitators as underappreciated compared to pure-play names, and that''s best expressed through the integrated...
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29 Jun 20
Q1 20 results in line
EBITDA decreased by 5%, and the group’s result by 10%. Due to low electricity prices, Verbund had updated its guidance, which is line with our last model update. Moreover, as Verbund has been used as a proxy for the carbon price in Europe, since the latter is expected to remain more or less flat, we see no reason to rush into the stock at the moment.
13 May 20
FY19 as expected
Good growth in FY19, but in line with expectations. Growth was supported by a higher achieved price, and favourable weather with a hydro coefficient 7.4% higher than in FY18. EBITDA increased by 37% to €1.2bn. Mechanically, the adjusted net income increased by 60% to reach €0.5bn. Net debt was down by 12% to €2.2bn. In line with the 40-50% pay-out policy, the proposed dividend is €0.69, the current yield is then rather low at 2.1%.
18 Mar 20
Q3: expected slowdown
The group experienced a slowdown in Q3 compared to H1. The hydro coefficient remained higher than in Q3 18, but was significantly lower than the historically high H1 levels. On the other hand, the group continues to benefit from higher prices on the futures market for wholesale electricity. The group slightly narrow its FY guidance range, so we will adjust our model accordingly, but the impact on the target price should be limited to a low to mid single-digit. We confirm our Sell recommendation.
06 Nov 19
Is Verbund a carbon call option?
Verbund is up by more than 45% ytd, comfortably outperforming the Stoxx600 and the evolution of the baseload, its core business. Its almost 100% green energy mix makes Verbund the perfect proxy to play the rise in the price of carbon. However, the market seems to be ignoring the negative operating aspects. Based on fundamentals, we confirm our negative view on the stock.
10 Sep 19
Mean reverting is expected for H2
After a good set of H1 figures, the group has revised upwards its EBITDA and net income full-year guidance (which were considered disappointing at the time of their announcement), and, as the pay-out ratio guidance remains unchanged, we can expect an increase in the dividend. The new guidance is based on a normalisation of hydro conditions, which, by being 11% higher than the long-term average in H1, is the first growth driver.
01 Aug 19
Good Q1 figures; lower range of guidance slightly revised upward
The group benefits from a hydro coefficient higher than the long-term average, but suffers from tough comparatives. The group result was up by almost 50% after a good operating performance and lower financial costs. The lower range of the year’s guidance was slightly revised upward.
09 May 19
Poor FY18 and disappointing FY19 guidance
Renewables suffered from adverse hydro conditions in H2, with EBITDA coming in slightly less than guidance, which had already been revised downward in November. Thanks to good cash generation, the group was able to reduce debt and expects to increase its RAB, but the adjusted EBITDA and adjusted net income for FY19 were lower than consensus expectations.
13 Mar 19
Dry weather during Q3 cuts 30% of Verbund's EBITDA
Verbund released a weak set of 9M results. During the third quarter, an exceptionally low water supply resulted in a c.30% decline in both hydro power generation and EBITDA, forcing management to cut its FY18 EBITDA and net profit targets by 8-9%. However, the group was able to improve its hedging profile further while reducing its net debt, ahead of a likely strong 2019.
07 Nov 18
Favourable hydro conditions keep supporting the results in H1
Verbund released a strong set of H1 results, marked by higher renewable generation supported by favourable hydro coefficients, although partly offset by lower achieved prices. The group revised upward its previous FY18 objective and confirmed a 40-45% payout for FY18 (post adjustments for non-recurring effects).
26 Jul 18
Positive dividend suprise and improved 2018 outlook
Verbund released a strong set of full-year results on the back of more favourable weather conditions in H2 and exceptionally strong Flexibility products. It therefore decided to upgrade its 2018 objectives. The board also proposed a €0.42 dividend for 2017, above market expectations.
14 Mar 18
Net income guidance raised (once again)
The group has been suffering from the dry weather as the water supply was 6% below the long-term average. In addition, lower achieved prices have impacted EBITDA, which decreased by 5% to €663.5m, operating cash flows are down 26.4% and the adjusted net income reached €252.1m, down 8.8%. But all are within expectations. The group maintains its EBITDA outlook at €830m, but has raised net income by 6.7% to €320m from €300m previously.
08 Nov 17
Resilient H1 results, negatively affected by weak hydro conditions
The group has published resilient H1 results, which were negatively affected by the challenging environment in Water supply. Revenues increased by 1.1% to €1.48bn, EBITDA decreased by 7.6% to €415.9m, while the operating result grew by 27.5% to €243.3m. The group’s reported and adjusted results both amounted to €154.5m, respectively increasing by 0.4% and decreasing by 11.2%. Management maintains its earnings outlook for 2017 as the lower contribution from the Grid segment is offset by the strong momentum in Flexibility products. As a reminder, the guidance was lifted in May following the strong Q1 results. FY17 EBITDA is seen at c. €830m and group adjusted and reported result at c. €300m. The company also announced two days ago, that it plans to pay out 40-45% of the group result after adjustment for non-recurring effects (2016 ratio was 30.9%). From now on, dividends will be decided year by year to account for the higher volatility in the European grid system.
27 Jul 17
System stability boosts earnings; concerns over German-Austrian market separation limits mid-term visibility
The group has published strong Q1 results with revenues increasing by 0.5% to €810m, while EBITDA increased 6.5% to €227.5m and net income increased 13.4% to €93.4m. The positive result comes despite an 8% fall in hydro generation, which was more than compensated by wind and thermal generation and higher revenue from network flexibility. After the strong start of the year, the group has decided to increase its full-year guidance by 5-10%, now expecting EBITDA of €830m and net profit of €300m. However, the increase in the target price has already been priced in by the market as it now fits within the FY17 consensus expectations.
10 May 17
Strong 2016 earnings performance; cautious guidance; risks over German-Austrian market separation continue
The group continues on its positive earnings trend. The top-line was weak with revenue falling 6% yoy to €2,795m, missing expectations, but EBITDA improved by 17.5% yoy to €1,044m and net income by 104% to €424m. Adjusted for one-offs such as the gas contract negotiation, outstanding issues on district heating, and impairment losses on Romanian wind farms, EBITDA increased 6.6% to €894.5m and net income 21.2% to €325.9m, 4% ahead of expectations. Operating cash flows improved by 19.3% yoy to €804m, which has reduced net debt by 12.5% yoy to €3.22bn. The group has proposed a dividend of €0.29/share with a 31% payout ratio, better than expected. For 2017, the group expects EBITDA to reach €800m and net income €280m, in line with expectations.
08 Mar 17
Another guidance upgrade for 2016. Increasing likelihood of a German-Austrian market separation
The group has once again provided strong 9m results with revenues relatively flat with a 0.8% yoy increase to €2.12bn, but EBITDA increased 11.5% yoy to €810m and net income increased by 48.7% yoy to €466.4m. On an adjusted basis, net income still increased 12.7% to €276m and EBITDA 2.8% to €698m. The positive results were driven by the positive hydro performance, effective cost cutting, supply renegotiation contracts for gas assets and a higher contribution from networks. As a result, the group has raised once again its full-year guidance with EBITDA now expected to be €980m and reported net income €385m. The dividend policy is still maintained at a 30% payout ratio with an increase in adjusted net income to €315m.
09 Nov 16
Positive results confirm previous guidance upgrade
Strong half-year results for the company given the market conditions as revenue increased 3.9% yoy to €1,460.7m. However, reported earnings were negatively impacted on a comparative basis as 2015 benefited from positive non-recurring items in addition to impairment losses. As a result, EBITDA fell 8% yoy to €450.2m, operating profit decreased 37.2% yoy to €190.8m and net income contracted by 21.6% yoy to €153.9m. However, on an adjusted basis, the results provide a completely different story as EBITDA increased 1.8% yoy to €450.2m and income improved by 7.9% to €173.9m. Moreover, operating cash flows increased 13% yoy to €476.6m, while free cash flow before dividend payments contracted by 21% to €365m. As a result, the provided results confirm the guidance increase provided on 18 July 2016, when the group expected to achieve an EBTIDA of €840m and net income of €270m for the full year 2016. The 30% payout ratio would be calculated on an adjusted net income of €290m.
28 Jul 16
Guidance raised followed by a dividend cut
Before the half-year results, Verbund has raised earnings expectations for 2016 with EBITDA 12% higher to €840m and a net income of €270m (+17.3%). The improvement is due to cost reductions from restructuring measures, higher profit from the grid segment and a slight improvement in the electricity business.
18 Jul 16
Solid start to the year, offset by uncertainty over the dividend policy
Despite the difficult market conditions Verbund has provided strong results with revenue reaching €806m, a 10.9% yoy increase and 19% above expectations, driven by a higher customer base and an increase in electricity sales volumes (+9.2% yoy). EBITDA was relatively flat (-2% yoy), although it is 11% better than forecasts due to a higher contribution from regulated activities and the positive effects from the restructuring process. Operating profit increased 4.5% yoy to €129.4m and *adjusted net income increased by 30% yoy to €82.4m, mainly due to improved financial results, translating into an EPS of €0.24. Operating cash flows increased by 60% yoy and net debt decreased by 5.4% ytd to €3.48bn. Free cash flow after dividend payments remained in positive territory, although it decreased by 19% yoy to €216m, mainly driven by higher cash outflows associated with money market transactions (-€139m). Despite the strong performance, guidance has been maintained with EBITDA at €750m and €230m in net income as the group expects the performance to continue in the coming quarters. Moreover, the dividend policy is currently under review as the group is focusing on cash-flow generation.
04 May 16
Focus on cash flows as power prices fall: lower investment and dividends
Given the market environment, the group showed a good operating performance with revenue increasing by 3.1% yoy to €2,969m and EBITDA increasing 10% to €888m, positively boosted by one-offs. On an adjusted basis, however, EBITDA decreased by 6% yoy reaching €839m as the reversal on grid revenue provisions linked to SNT-VO and SNE-VO are non-recurring items with a €50m positive effect on earnings. The bottom line results were better than expected due to lower financial expenses (-55%yoy) and taxes reaching €207.7m (+64% yoy). On an adjusted basis, net profit reached €268.9m, which is a 24% yoy increase. Cash flows remained strong despite deteriorating conditions as operating cash flows decreased 6% yoy to €673.9m, where lower capex (-37% yoy), dividend payments (-62% yoy), added to €441m from divestments, have allowed the group to repay €893m of outstanding debt without any new debt begin issued, while maintaining free cash flow relatively flat at -€12.8m. In terms of guidance, the group has made clear its worries concerning lower power price developments as it now targets €750m in EBITDA and €230m in net income. The lower than expected dividend at €0.30/ps has been proposed, corresponding to a 50.2% pay-out on the reported basis and only 38.8% on the adjusted one. This amount was a last minute measure taken by Verbund’s board as a €0.35 dividend proposal was written in the annual report, with a later adhoc document stating the downward revision on the dividend payment to €0.30.
15 Mar 16
Balancing grid revenues improve the group’s performance
Positive results for Verbund, as it has once again raised its guidance for 2015 to €900m EBITDA (+6%) with net income reaching €240m. The payout ratio is maintained at 50%. Top-line results are better than expected, with revenue increasing by 1% ytd where it was expected to be flat, reaching €2,106m. EBITDA increased by 15% to €727.7m, although on an adjusted basis it decreased by 1% ytd to €681m due mainly to lower achieved prices and a lower hydro coefficient, slightly compensated by higher electricity volumes. Operating profit increased by 87% ytd, although it remains within forecasts of €386m. Adjusted net income increased by 40.7% ytd to €245.2m, which is 4% above expectations. Free cash flow after the dividend was €393m, coming from negative territory a year ago.
04 Nov 15
Good hydro levels, positive one-offs and active liability management boost profits
Despite the earnings upgrade provided on 9 July 2015, the group’s results are still above expectations. Even if there is a slight decrease in revenues of 0.8% yoy to €1,405m, the decline is less pronounced than markets expected, being 2.73% above consensus. Due to a higher hydro-coefficient level of 1.03 (3% above the long-term average), hydro power generation pushed up the output of the group, with a total 10.5% increase on own production to 17,217GWh, compensating for the decrease on electricity spot prices. This has boosted EBITDA to €442.1m (a 5% yoy increase); however, if the one-offs from the reversal on provisions for expected legal settlements in the grid segment are taken into consideration, EBITDA rose 37.9% yoy to €489.1m (4.1% above consensus). In addition to the favourable generating output, positive tax effects and an improvement in interest expenses have helped the bottom line results of the group, where, adjusted for non-recurring effects, they increased by 72.3% yoy to €161.2m; however, reporting wise, the net result of the group rose by 246% yoy to €196.3m (4.7% above expectations). The 2015 forecast is in line what was previously provided earlier this month: a €850m EBITDA and €240m net result.
29 Jul 15
2015 net profit upgrade and diversification within the renewable business
Today, the Austrian group's management raised its net earnings forecast for 2015 by 33% to €240m, and also improved its EBITDA expectations to €850m by the end of the year. The increased expectations should also positively affect the dividends paid this year as the group maintains its dividend policy ratio at a 50% net income payout ratio. The improvement in the earnings forecast has been adjusted, mainly due to the reversal of provisions, above average water supply levels, cost reductions due to improvements in operations and optimisation measures in the thermal segment. Moreover, the new targets provided also include the one-off expense linked to the planned bond buy-back. In addition to this, the group has acquired a 50% share in Solavolta, which is the largest Austrian firm specialised in developing photovoltaic systems.
09 Jul 15