Hydrogen: the green gas transformation
Hydrogen: it''s the first element, and these days often the first word on investors'' lips. And no wonder. With the European Commission launching its industrial strategy on hydrogen tomorrow, a new era is beginning. In the next decade, a 50-60% drop in green hydrogen costs is on the cards, potentially transforming energy, transport and industry. At the heart of this revolution sits the utilities sector, as hydrogen fosters deeper renewables penetration, gives a new lease of life to gas, and ushers in a more flexible, versatile energy infrastructure. Our in-depth exploration of key technology and market impacts charts how, when and where the opportunities will be catalysed. Gas grid operators (e.g. Engie, SNAM) should benefit, and integrated utilities are also well placed to harness the energies hydrogen unleashes.
FORTUM RWE EOAN VER IBE SVT ENGI ELE NG/ UU/ CNA EDP ANA GAS SSE ENEL VIE REE GAM VWS PNN SRG ENG TRN EDF ELI DRX CEZ SLR SEV EDPR VLTSA ORSTED BIFF GLO
07 Jul 20
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...
FORTUM RWE EOAN VER IBE SVT ENGI ELE NG/ UU/ CNA EDP ANA GAS SSE ENEL VIE REE PNN SRG ENG TRN EDF ELI DRX CEZ SLR SEV EDPR VLTSA ORSTED GLO
29 Jun 20
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.
15 May 20
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.
06 Feb 20
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.
24 Oct 19
Encouraging Q2 figures
After weak Q1 figures, Fortum released a solid set of results for Q2, beating our estimates and the market’s expectations. Results increased in all divisions and higher achieved prices and good hydro and nuclear volumes were the two major growth contributors. Thanks to strong cash flow generation, the group was able to reduce its debt ratio and to reiterate its ambitions to strengthen its balance sheet.
19 Jul 19
Higher achieved price offset by low hydro production
Fortum released a weak set of Q1 results. The poor hydro production (-25% to 4.8TWh yoy) due to low reservoir levels at the beginning of the year almost entirely offset the positive effect of the higher achieved price during the quarter. Consequently, Generation’s EBITDA (half of the group’s EBITDA), remained broadly flat and, therefore, the group’s EBITDA as well, missing the consensus.
26 Apr 19
Higher power prices boost Fortum’s Q4 results
Fortum released a good set of Q4 results, marked by the positive impact from higher power prices in the Nordics, although partly offset by currency headwinds in Russia and continued low inflows and low reservoir levels in the Hydro generation business.
01 Feb 19
Russian headwinds and warmer weather offset higher power prices in Q2
Fortum released a mixed set of Q2 results, marked by the consolidation of Hafslund and the strong performance of the Generation division, which was helped by higher achieved power prices, although partly offset by weaker results in the City Solutions and Russian divisions due to unfavourable weather effects, weaker waste activities and currency headwinds in Russia.
19 Jul 18
Q1 18: positive scope effects, strong City Solutions and Generation offset weakening rouble.
Fortum released a robust set of Q1 results, driven by the consolidation of Hafslund’s retail business as well as stronger Generation on a higher achieved power price (+€1) and hydro volumes while the weather was favourable with cold and dry weather supporting power prices. The group expects to close the Uniper deal by mid-2018.
26 Apr 18
Q3 confirms the recovery trend; E.On’s Uniper stake in focus
The Q3 results showed improvements as expected with adjusted EBITDA reaching €210m (+39%) and operating profit reaching (+62%). In addition, the group profited from a sales gain from the Hafslund restructuring transaction with the City of Oslo, which improved reported profits to €387m and a reported EPS of €0.40/share. Adjusted for this, EPS in Q3 17 reached €0.04/share. Along the same lines, operating cash flows in the third quarter improved by 83% to €185m as the group has benefited from the improvement in electricity prices and higher hydro volumes. Russia continues on its upward trend due to higher CSA payments which is also a positive. Fortum continues with the process for the purchase of E.On’s Uniper stake at €22/share, as it has received the approval from US competition authorities and has submitted the offer documents to the German Financial authority (BaFin).
26 Oct 17
Weak second quarter eclipses strong start to the year; Russia shines again
The group has reported an EBITDA that has increased by 13% to €642m, but this is short of expectations as earnings in the second quarter were weak. As a result, net income was negative for the second quarter at €-70m due to higher income taxes paid. This has pushed the first half net profit to far below expectations to €271m (€0.30/share). Adjusted EPS is below forecasts at €0.33/share. The group maintains its outlook that demand will grow 0.5% on average for the Nordic region. The group has hedged 45% at €30MWh for 2017 and 45% at €28/MWh for 2018. This is a positive as it has increased its hedging price by €1/MWh, which improves profitability.
20 Jul 17
Strong start of the year with the much-awaited recovery; Russia shines
Fortum has published a good start of the year with Q1 results confirming the expected recovery as revenues increased by 24.5% to reach €1,232m. Following the same path, adjusted EBITDA increased by 18.5% and operating profit by 13.8%. However, a lower minority interest and higher taxes pushed net profit to a 2.7% increase and an EPS of €0.38/share. Operating cash flows on the other hand decreased by 24.8%, mainly due to €58m foreign exchange losses in hedging contracts to Russian and Swedish subsidiaries (compared to a €128m gain in the last quarter). The operating profit target in Russia of RUB18.2bn, which was expected to be reached in 2017-18, has already been reached in the last 12 months, which is a positive as this is ahead of expectations. The company maintains its guidance of 0.5% growth in demand. Production has been hedged 55% at €29/MWh for 2017 and 45% at €27/MWh for 2018.
27 Apr 17
Low water levels and generation margins impact the group’s results
The group has published its FY results with revenues better than expected, reaching €3.63bn with a 5% yoy increase. The improvement mainly came from City Solutions and the performance in Russia. However, on the earnings side, the generation business bites as the divisional performance pushes the group’s results below expectations with an EBITDA decrease greater than expected at -7.9% yoy. Despite a lower effective tax rate (20%) and lower financial expenses (EPS was also behind consensus, reaching €0.56 which is 11% below expectations. Cash flow from operating activities was highly impacted as it decreased by 50.5% yoy to €607m, driven by lower earnings, higher taxes paid, lower FX gains, and a €131m increase in working capital. Due to this and the many acquisitions, net debt decreased more than expected as it had already burnt up its excess cash position. Despite the results, the dividend proposed is above expectations at €1.1/share. Concerning the outlook, the group still expects 0.5% growth in electricity demand and an operating profit in Russia of RUB18.2bn should be reached over the 2017-18 period.
02 Feb 17
Lower hydro levels and hedging weigh on earnings
For Q3 16, the group has released weak results. Even if sales increased 5.8% yoy to €732m due to the consolidation of two recent acquisitions (Ekokem and Duon), EBITDA contracted 7.4% yoy to €151m and is below consensus as a slight recovery was expected. Operating profit finished on the negative side at -€6m, mainly because a hedging position backfired (80% of its production) and the company has not been able to profit from the recent rebound in prices (-€57m effect on operating profit) added to Ekokem’s transaction costs. Comparable operating profit still decreased 26.6% yoy to €58m. EPS finished in negative territory at €-0.03/share, and adjusted EPS finished at €0.03/share, which is still below the €0.05/share expected by the market. Operating cash flows contracted 47.43% ytd and -33.1% yoy due to lower profits, higher taxes paid and lower FX gains. On top of this, higher capex and a repayment of outstanding debt pushed net debt to -€137m, a substantial reduction of its net cash position of -€1,936m a year ago.
25 Oct 16
Dark clouds are still present: weak power prices weigh on margins
Difficult second quarter for the group as the results were impacted by lower volumes, prices and a weaker rouble, with revenues and EBITDA falling to €768m and €209m respectively (-3% and -8% yoy) which was in line with forecasts, while reported operating profit fell 53% and adjusted operating profit was also down 15%, missing market expectations by 5%. The negative effect on operating profit was due to the impacted of derivatives for hedging positions and nuclear fund adjustments. EPS for the quarter fell by 54% yoy to €0.06, although on an adjusted basis it was down 15% yoy to €0.11, which is broadly in line with expectations. The group maintains its general guidance of annual electricity demand growth of 0.5% and an operating profit level of €12.8bn targeted for 2017-18. For 2016, the company expects an investment level of €650m (with capex at around €300-350m). An effective tax rate of 19-21% is expected for 2016 with no further outstanding bonds maturing in the year.
20 Jul 16
Strong EPS given the weak top-line performance
Fortum published weak top-line results slightly below expectations, with revenue decreasing 5% yoy to €989m as revenue decreased in all divisions, missing forecasts by 4%. Operating profit reached €369m (a 5.4% yoy increase) mainly due to the disposal of a CHP plant in Russia, although on an adjusted basis operating profit decreased 20% yoy to €275m, missing consensus by 4%. At the bottom-line, on the other hand, helped by lower financial expenses due to the net cash position of the group and a positive adjustment of the nuclear fund (€50m), net income reached €335m, translating into an EPS of €0.37, a 12% increase; although on an adjusted basis EPS was €0.29 (a 12% yoy decrease), which is within expectations. Operating cash flows were weak as they decreased by 27% yoy to €375m; nevertheless, the balance sheet remains strong and equity levels continue to improve. The financial objectives remain unchanged in the long term: ROCE of at least 10% with a net debt/EBITDA of 2.5x, although in the short term there is no guidance provided, only for the effective tax rate which is expected to be 19-21%.
28 Apr 16
Weak results, lower dividend, and Russian exposure.
Sales decreased by 15% yoy reaching €3.46bn and missing estimates by 2% driven by low power prices and flat demand. Reported profit finished in negative at -€150m territory due to impairments on nuclear and thermal assets, where +adjusted profit decreased by 25% yoy to €808m, 6% below expectations as all segments are below estimates+. Fourth quarter EPS missed estimates by 60% to 0.02, but the FY EPS are in line with consensus at 4.66. The *balance sheet remains strong* and 11% better than expected as the net cash position of the company has been increased to over €2bn. Equity levels are also above our estimates at €13.8bn. The *Dividend proposed is below expectations at €1.1ps* as there would be no exceptional dividend from the divestment of its Nordic distribution network. Dividend policy has been maintained at which it targets to pay a stable and over time increasing dividend, but now includes a 50-80% payout ratio. The group has adjusted downwards its long-term financial targets to 10% ROCE (previously at 12%), but maintains its net debt/EBITDA objective at 2.5x. Moreover, new cost cutting measures on the fixed cost base are expected to reach €100m by 2017 (which adds up from the previously taken measures of €150m pa).
03 Feb 16
A likely acquisition in Polish gas infrastructure
The group has made public a tender offer to purchase the Polish company Grupa Duon SA. Fortum will carry out the acquisition if it receives at least 51% of the shares by the end of the offer. Shareholders representing 44% of the company capital including board directors have committed to selling their shares to Fortum. The price offered per share is PLN3.85, representing a 19% premium to the current price. The company has a market cap of PLN393m (€90.1m), with a business based in gas distribution networks and LNG regasification units, and also a trading division (gas and electricity). The group is one of the largest privately-owned retail electricity and gas sale entities in Poland, has expected sales of PLN866m (€198m) in 2015, with an EBITDA of PLN45.4m (€10.5m) and PLN24.8m (€5.7m) in net profit.
08 Jan 16
Q3 negative results: impairments and lower power prices
Weak top-line Q3 results for Fortum, heavily impacted by lower Nordic power prices. Sales decreased 24% qoq and and 15.6% ytd to €661m and €2,495m respectively, missing estimates by 2%. In Q3, comparable operating profits decreased by 46% to €79m pushing the ytd results down to a 21% decrease to €565m, also missing expectations by 2%. Although the bottom-line results are within consensus with a Q3 EPS in negative territory at €-0.74 EPS due to the write-down of the Swedish co-owned nuclear power plant, and ytd EPS at €4.64 driven by the divestment of the Swedish distribution business. The net cash position of the group increased by 5% to €1.93bn, which is better than expected. The group maintains its long-term financial targets at ROCE 12% and comparable net debt/EBITDA ratio at 2.5x. No information yet given on the dividend for 2015. The target on operating profit (EBIT) for the Russian division (RUB18.2bn) has been delayed by 2 to 3 years as there are delays on the investment programme.
22 Oct 15
Advanced closure of two Swedish nuclear reactors
At an extraordinary shareholder’s meeting held today, it has been decided that two units of the Oskarsham nuclear reactor in Sweden will be definitively closed. The decision was previously taken by E.On as it holds a majority stake (54.5%), with Fortum holding the remainder (45.5%). The decision for the advance closure for units 1 and 2 should have a negative one-off impact on net profit of €700m, booked in 2015, as the reactors would be closed before their planned operational lifetime. Unit 3 will remain operational as it is the newest unit.
14 Oct 15
Lower power prices sink results despite the strong cash coming from divestments
Fortum’s results are heavily impacted by the decrease in power prices. Sales have decreased, but are in line with expectations, reaching €1,834m (-12% yoy); nevertheless, the adjusted operating profits are 6% below expectations due not only to lower power prices but also from the cancellation of the Olkiluoto 4 nuclear project which deepened even further the decrease in the operating profit, reaching €494m (-17% yoy). Nevertheless, if we take into account the discounted operations and the sale of the Swedish network, the operating profit is 0.4% above market expectations, reaching €4.88bn. Lower net financial expenses have helped the group to slightly exceed market expectations by 1% with net income reaching €4.88bn. The group remains cash flow positive despite the decrease in profit, without taking into account the divestment income, due mainly to a 19% yoy decrease in capex to reach €209m and positive forex hedging. The positive cash flows have also helped net debt to decrease faster than expected (9% better) as the group now has a net cash position of €1.84bn, where markets expected €1.7bn. No information has been provided on the dividend for 2015 following the divestment of the Swedish distribution network which provided a net gain of €4.3bn. The Russian segment's objective is maintained at RUB18.2bn. Electricity prices for Nordic countries should continue to decrease as the group has started its hedging at €41/MWh for 2015 and €35/MWh on 2016.
17 Jul 15