FY2022: welcome relief after a tough year, Russian cloud still hovering

2022 could have proven to be the death warrant for Fortum amidst the costly losses relating to Uniped leading to its deconsolidation but also, to a lesser extent, its exposure to Russia and the related impairments. However, Fortum managed to get back onto its feet and deliver more-than-acceptable results versus the market expectations, driven by both higher commodity prices and power generation, and managed to pay a dividend this year.

Q3 22: Fortum beats forecasts despite a turbulent third quarter

Fortum reported robust growth in the third quarter, amidst the deconsolidation of Uniper and the full exit from the Russian market. The fears concerning volatile energy markets and margin call requirements didn’t prevent the group from recording a strong performance, with a 14.5% increase in EBITDA to €1.54bn. Caution is however required for the coming months given the prevailing volatility in the commodities markets.

H1 22: Uniper must not mask the solid resilience, Q3 at risk

While Fortum’s results are severely affected by Uniper’s headwinds, leading to a massive loss of €11.6bn at the operating profit level, the latter must not mask the solid resilience of Fortum stand-alone. We note a particularly good performance of Generation and Russia vs the first quarter. However, the Q3 is at risk given current energy prices and the recognition of further Uniper losses from the gas curtailment. The worst might be yet to come.

Q1 22: Goodbye Russia!

Fortum reported a complex set of Q1 22 results which were littered with a plethora of one-off and extraordinary events, preventing us from drawing clear conclusions as to the health of the underlying business. No matter; in the current environment, the really big news was the announcement of a ‘controlled’ exit from Russia – although it remains to be seen what ‘controlled’ means…

FY21: strong results but Russian uncertainty set to last

Unfortunately for Fortum, a beat on the FY21 results now takes a back seat to Russian-led uncertainty. In particular, the group confirmed a €5.5bn book value of Russian assets, and a 185TWh/year of Russian long-term gas contracts (50% of Uniper’s contracted volumes), but uncertainty remains on the risks related to financial commitments, potentiality and timing of impairments, margin call risks, as well as the one which will bear the costs in the case of gas shortages.

9M 21: a slight miss on a highly volatile environment

Fortum missed our expectations and consensus estimates for the 9M 21 results, while the yoy figures remained very strong: comparable EBITDA is up by 102% and comparable EBIT multiplied by 3.5x to €1.47bn. The company particularly struggled to manage a very volatile gas market environment and surging power prices, impacting its funding requirements. However, the full-year outlook was reaffirmed and the dividend policy is intact. Cautious view confirmed.

Nuke optionality

What if the best solution for the energy transition were … nuclear power? Nuke is back at the heart of political debates in the context of the current energy crisis and massive but insufficient investments in renewables. This short review provides an overview of nuclear power in Europe and speculates on options. This ‘nuke optionality’, hinging on a favourable green taxonomy, is a game-changer for EDF, Centrica, Fortum but also Engie, Iberdrola, Enel and EDP.

H1 21 driven by power prices, confidence for H2

Fortum has reported a good set of first half 2021 figures, slightly better than expectations and benefiting, in particular, from higher achieved power prices and volumes. Moreover, as a quarter of FY21 production remained unhedged (but only 10% for Uniper), we are confident on the H2 outlook. Closing of the Exergi sale expected before 2022. In our view, these elements are already priced in. Neutral recommendation confirmed.

Fortum is selling Exergi with a strong premium

Fortum has announced the sale of its 50% ownership in Stockholm Exergi for €2.9bn to an investor consortium led by APG, a Dutch pension fund. With a significant premium compared to our valuation, the deal will allow the group to deleverage and make its carbon footprint greener, as these two metrics worsened after the consolidation of Uniper. Is this enough to accelerate the asset rotation and a total squeeze-out of Uniper ?

Estimates beaten thanks to Uniper

Fortum released a solid set of Q1 21 figures. The strong performance of Uniper combined with positive price effects in the Nordics were the main drivers. As a result, net profit soared to €837m and beat expectations by 8%.

FY20 slightly disappointing

The group remained highly impacted by the low level of prices over Q4 20, resulting in a c.30% drop in the full-year operating profit (excluding Uniper). However, on the back of the particularly cold seasonal temperatures, prices are back to normal levels in the first months of the year. We confirm our negative recommendation.

Q2 20 results below expectations

EBITDA came in at €512m and operating profit at €207m, both below expectations. This is mainly due to the particularly low electricity prices in Q2 20, due to weather conditions – but the group was partly protected by its hedging strategy. This confirms that keeping its financial strength (with a minimum BBB rate) is the first short-term target. A FY20 guidance has still not been mentioned (due to the consolidation of Uniper and the COVID-19-related uncertainties).

Q1 20 - in line

Comparable EBITDA was flat at €543m, and comparable operating profit was down by 4% to €393m. According to the group, COVID-19 had only a limited immediate impact on figures. The pay-out target of 50-80% is maintained, however, due to its M&A with Uniper, the group has not yet provided a full-year guidance, but it is pretty well hedged to the low electricity prices.

Positive surprise in Q4

Adj. EBITDA increased by 17% to €552m, and adj. operating profit by 20% to €389m, both above the consensus and our expectations. This good operating result was mainly due to the Generation division (EBITDA was up 23% to €278m q-o-q), after favorable hydro conditions. The positive impact of the settlement of futures contracts helped to reduce the debt level. The dividend is €1.1, implying an attractive yield of c.5%. Positive view confirmed.

Satisfying Q3, but with uncertainties ahead

Satisfying Q3. Hydro conditions were back to average, thus generation was the main growth driver. On the other hand, City Solutions’ earnings were particularly disappointing, but hopefully had only a limited impact at the group level. The group escaped the drop in the Nordic electricity price thanks to its good hedging strategy, but the coming years look less positive. Moreover, the low current level of hydro reserves is not a good sign for Q4.

LIBERUM: Luceco* - Margin momentum coming into view

LIBERUM: Yü Group* - Strong momentum and cash flow

LIBERUM: SigmaRoc* - Critical mass demonstrated

Invinity Energy Systems - First Sale In Hungary

Invinity has followed the Hungarian reseller agreement announced on 10 March with a first sale of VS3 flow batteries for an EU funded solar plus storage project in the country. This is in line with the company’s other recent reseller agreements providing strategic access to new energy storage markets. We think it is good to see Invinity securing battery sales at the outset of new reseller agreements as this provides further confirmation of the company’s growing commercial momentum in our view.

LIBERUM: Costain Group* - Free cash more than 50% market cap

LIBERUM: Judges Scientific* - FY22 ahead of expectations

Strix (KETL LN) - FY22 results in line; early signs of recovery in Controls

Strix has reported adjusted post tax profit in line with guidance, provided back in November, at £23.0m. Revenue of £106.9m is down 10.5% yoy and broadly in line with the Zeus estimate of £110.0m. The decline in revenue is a consequence of destocking across the supply chain in the Controls division. Both the Appliance (+1%) and Water (+8%) divisions showed organic growth yoy whilst benefitting from the addition of the Billi acquisition that completed at the end of November. Importantly, in terms

Judges Scientific FY Results – Outstanding results, Steady organic, M&A delivers in spades

Judges Scientific is a group involved in the buy and build of scientific instrumentation businesses. Testament to the strength of its highly engineered offer and global diversified customer base (offsetting Covid-induced earlier weaker order intake from China, although rebounding in December 2022), total revenue increased an impressive 24% to £113.2m (organic basis 8%), buoyed by Geotek, with adjusted PBT increasing a substantial 56.7% to £28.3m (FY2021: £18.1m), 4% ahead of our estimate of £27

Supreme plc: disposal of T-Juice intellectual property

Supreme reports that it has entered into an agreement with an associated company of La Vape Professionelle Distribution (LVP), a leading French wholesaler of e-cigarettes and e-liquids, for the disposal of the intellectual property (IP) of T-Juice, inclusive of the Red Astaire brand. Supreme will receive an upfront payment of €4.5m (£3.97m) in respect of T-Juice brand IP, with the addition of income from consultancy services. The agreement ushers in a new strategic partnership in which Supreme

Hardide Update

The AGM statement reiterated the ‘cautious optimism’ that underpinned the group’s recent annual report (covered in our 9 February update). HDD is experiencing growth across all of its key markets; aerospace, energy and industrial products. First half revenues to end March 2023 are expected to come in around 7% ahead y-o-y. That will be sufficient to deliver forecast EBITDA breakeven in FY23 despite deferral of a c. £0.3m order into H1 FY24. That outcome underlines the success of initiatives to

Hybridan Small Cap Feast - 21 Mar 23

21 March 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectiv

Hybridan Small Cap Feast - 24 Mar 23

24 March 2023 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectiv

SHORE CAPITAL - Ultimate Products+ (UPGS, House Stock at 140p)

Promising second half

Powerhouse Energy - Irish JV Agreed

Powerhouse has agreed terms for a joint venture to develop a waste to hydrogen project in the Republic of Ireland on a strong-centrally located site. This will now be the company’s entry point into the Irish market. While the country has a plastic recycling rate of 29% it is highly reliant on exporting packaging material abroad for treatment and in-country solutions represent a wider opportunity for Powerhouse in our view.