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Fortum will report 2Q25 results pre-market on Friday 15 August. Ahead of the release we have spoken to the company; we highlight there has been no change to guidance. We think this is going to be a weak quarter. Generation is likely to be impacted by a decline in output YoY in both nuclear and hydro due to outages and weather conditions, whilst both spot and hedge prices are lower YoY. There will also be non-recurrence of asset sale gains from 2Q24 and the negative impact of the Swedish property tax. As a result we forecast generation EBIT to fall by c50% YoY. If our 2Q net income forecast proves correct it would have Fortum booking 54% of FY net income consensus in 1H, compared to 68% last year based on 1H24a/FY24a, although in line with the 55% booked in 1H23a/FY23a, benefitting from the strong 1Q25 already reported. It''s also important to bear in mind that region-adjusted Nordic forward prices have rallied since we last updated our FY25+ estimates back in late April. A sensitivity to our published estimates marking to market for current forward prices would imply c7% upside to EPS in FY26+, but would only leave us slightly above consensus in FY26, and slightly below in FY27. Fortum is up around a quarter from its April lows (although flat vs. March), helped by the rise in Nordic power forwards and, we think, also lifted by a recovery in popular data centre-linked stocks in the US. However with Nordic forwards losing their upward momentum in the last couple of weeks and with a mixed outlook for the quarter, we see some basis for caution.
Fortum Oyj
Despite the strong 1Q beat our FY25 EPS is unchanged and we cut FY26+ by up to 5%, with upgraded optimisation premium assumptions more than offset by lower volume guidance for FY25 and lower Nordpool forwards in FY26+. It would take a meaningful further increase in OP assumptions (to EUR9.5) to bring our numbers back up to consensus. We stay at Underperform. Optimisation premium outlook has improved, but outweighed by Nordpool declines More important than the 1Q beat is a growing track record of beating on optimisation premiums. This is a black box item but material and we expect longer term assumptions will be raised; we raise ours to EUR8/MWh (from EUR7) in this note. The problem is, declines in Nordpool forwards mean OPs would need to rise to EUR9.5 indefinitely just to bring our ests. back into line with consensus (from base case 10% below in FY27). They were EUR8.7 in 2024 and co is guiding EUR7-9 for FY25. Clients have also flagged that Fortum is hedging above the forward curve, but this could just be a case of hedging 1Q26 where prices are higher than CY26. And if Fortum is selling flexibility as part forward hedges that could logically cannibalise wider optimisation premiums - it''s not possible to sell flexibility twice. Uniper assets would be significantly accretive ... if they can be financed A very rough analysis assuming a EUR4-5bn value for Uniper''s Nordic assets and similar earnings characteristics to Fortum implies c20% EPS accretion, but this would overstretch balance sheet metrics on our ests. A scenario of raising EUR1.5bn of new equity to correct that would reduce accretion to the mid-teens. That is still a significant number though, and a meaningful upside risk. We hold on to the U/P for now These were good results and there will likely be upgrades to l-t opt. premium assumptions. But then again, lower Nordpool forwards more than cannibalise that effect and the shares were up 8% on Tuesday. They are at 19x P/E by 2027 on our new numbers. We...
Overall view on the call: Three important takes 1) optimisation premium beat was mainly driven by increased renewables intermittency benefitting flexible hydro, but co suggested this is seasonal and wouldn''t necessarily be recurring in 2026+, 2) did not rule out looking at Uniper Nordic assets after recent resurgence in press reports, but did appear to rule out raising equity to do a deal, 3) guided to a pretty significant volume cut in 2025 due to nuclear outages and lower hydro volumes. Also some interesting commentary at the end about being able to hedge at levels above the forward curve, although unclear whether this would come at the expense of optimisation premiums. Overall a dampener vs. this morning''s strong results in our view, with the volume guidance looking materially below street. Key points from the call: . Use of balance sheet. Look at acquisitions and organic projects based on the same criteria, targeting WACC+150-400bp. Acquisitions would need to match or exceed organic opportunities like new renewables, pump storage and nuclear. Would not look at regulated grids though. . Uniper assets. Previously the German govt was exploring an IPO, but has recently also asked advisors to look at a bilateral sale, which might explain why there has been new press on potential Uniper interest eg. recent FT article. Fortum position remains unchanged, have right of first offer (until 2026), and are generically interested in hydro and nuclear. Would evaluate a deal on the same financial framework as for all acquisition/organic investment. In that framework there are no share issues in the planning . This is relevant as it is debatable whether Fortum could buy all the assets with its current balance sheet capacity. . Disposals. There are some 10s of millions worth of non-core assets that could still be sold like remainders of the recycling, waste and circular economy businesses. . Optimisation premiums. Higher share of wind has increased...
BNPP Exane View: Big beat driven by strong optimisation premiums due to high power market volatility in the quarter. FY optimisation premium guidance has been upgraded as a result, although 2026+ guidance is unchanged. Net debt came in at zero ahead of the dividend payment in Q2. These are strong numbers and come after recent underperformance - shares are likely to open strongly, although the upgrades look limited to 2025 only. Fortum has released its 1Q25 results. The key highlights are: . Comparable operating profit big beat, EUR462m vs. Vara consensus EUR364m (+27%) . Comparable EPS big beat, EUR0.42 vs. Vara consensus EUR0.33 (+27%) . Mar''25 net debt EUR13m (ie. effectively zero) - no viable consensus Guidance updates: . 2025 optimisation premium guidance upgraded to 7-9 EUR/MWh (previously: 6-8 EUR/MWh). . 2026 optimisation premium guidance unchanged at 6-8 EUR/MWh . Capex guidance unchanged (2025-2027 total EUR1.4 billion, of which growth EUR150-300m pa and maintenance EUR250m pa) . Comparable tax rate guidance unchanged at 18-20% although now only applies 2025-26 (vs. prev 2025-27) . Efficiency programme guidance unchanged. Divisional highlights are: . Generation comparable operating profit big beat, EUR436m vs. Vara consensus EUR363m (+20%): ''Despite the lower Nordic spot prices, we were able to reach a very good achieved power price ... of approximately 60 EUR/MWh, supported by a robust, double-digit optimisation premium, which was above the premium of the first quarter of 2024.'' . Consumer solutions comparable operating profit big beat, EUR47m vs. Vara consensus EUR34m (+38%), ''driven by improved gas margins in Poland and synergies from the brand mergers completed in 2024'' Hedging: . 2025 hedging: now 75% hedged at EUR40.0/MWh for Q2-Q4 (vs. previously 75% at EUR42.0/MWh for Q1-Q4) . 2026 hedging: now 50% hedged at EUR41.0/MWh (vs. previously 45% at EUR41.0/MWh), implying EUR41/MWh on incrementally hedged volumes The conference call will begin at 09:00 UK time, dial...
What happened? According to an article in the FT on Sunday, Fortum is looking at buying German utility Uniper''s Nordic assets, which include stakes in nuclear and hydro plants in Sweden. Fortum declined to comment on what it described as rumours . BNPP Exane View: This is not as new news as it may seem. It was already well-known that Fortum has a right of first refusal on these assets running until the end of 2026, and the notion of acquiring them has been discussed for some time (including on the recent FY24 conference call). It is also far from certain that Uniper, currently controlled by the German government after a bailout in the wake of the cutoff of Russian gas in 2022, would be willing to sell, something the FT article itself acknowledges. Moreover, there is difficult history to navigate given that an abortive full takeover of Uniper by Fortum ultimately collapsed in late 2022 due to Uniper''s govt bailout, resulting in losses for Fortum shareholders including the Finnish government (which owns 51% of Fortum). The FT article suggests there could be other bidders for Uniper as a whole and/or for the Swedish assets in question. Fortum does have spare balance sheet which could provide headroom for a transaction, though. The FT article mentions a valuation for the assets in question of several billion euros . Our past work on Fortum (eg here) has suggested a major acquisition could drive significant double-digit earnings accretion. The question is whether a transaction will actually happen. We would guess at a small positive share price reaction given the spotlight effect from a credible publication such as the FT, as we think the potential synergies that could be harvested from a local assets deal, as well as EPS accretion potential from using spare balance sheet capacity, probably outweigh the generally dim view many investors would take towards another major MandA move from Fortum. We still see a transaction as far from certain though.
Fortum will report 1Q25 results pre-market on Tuesday 29 April. Ahead of the release we spoke to the company; we highlight that there has been no change to guidance. On numbers, we expect: - In Generation, substantially lower EBIT YoY owing to lower achieved power prices vs. 1Q24 as well as slightly lower nuclear output due to outages, and the impact of the Swedish property tax. - In Consumer Solutions, a repeat of the strong performance from 1Q24, as the division continues to recover from negative customer behaviour in previous years. If our 1Q estimates prove correct, it would constitute 36% of FY25 consensus adj. net income. In comparison, in 1Q24 Fortum made 48% of its final FY24 adj. net income, and equivalent ratios were 42% for 1Q23/FY23 and 21% for 1Q22/FY22. NB that the stock will go ex-dividend EUR1.4 on 2nd April, comprising the EUR0.9/sh regular annual dividend and the EUR0.5/sh special dividend announced at FY results. On the conference call, we expect key topics to be: - Data centre power demand and PPA outlook, especially in light of a recent withdrawal of electricity tax breaks for data centre operators in Finland (see report) - we understand from Fortum that this could increase data centre operator power costs by 2.2ct/KWh i.e. EUR22/MWh - more than a 50% increase. - Hedging captured price and incremental volume hedged. - Commentary and current trends on optimisation premiums.
Fortum held a virtual debrief for sellside analysts on Wednesday post Tuesday''s results. Joy Xu from our team joined the call, and key takes are below. As usual the session focused on points of detail and nothing here strikes as material, although clearly data centre PPAs remain an upside risk - one that we are comfortable with for now, as we don''t think any single PPA can be material enough in price premium+volume terms to meaningfully move the dial for Fortum''s equity story, especially in light of the recent decline in long term Nordpool forwards. Key points from the debrief QandA: . Long-term hedging. Not intending to disclose pricing on the 20% rolling 10y outright generation volume hedge (targeting to reach that level by end of 2026). Co said that a longer tenor should normally imply higher prices especially as demand is expected to rise in the outer years. . Power demand outlook. Mgmt thinks that the outlook by the TSOs (Feb''25 investor presentation, p.8) looks to be slightly optimistic as hydrogen projects are not really progressing, next update may be in spring this year. Thinks that the estimates on data centres could be a bit outdated and could be higher. On other industrial consumption would be more of a timing topic. . Data centres and PPAs. Have several PPA discussions ongoing and the pipeline is ''very robust'', co. has confidence in the projects but will need time to materialise. . Optimisation premium. Achieved 8.7EUR/MWh last year, not disclosing quarterly numbers but they had said last year that Q1 was very high (EUR10). Main driver of the premium is volatility, especially Finland. Decreasing GoO prices would not change their forecast. . Cost saving programme. Programme itself is progressing well (EUR 60m of gross cost savings in 2024) and have plans to continue to reduce annual fixed costs by EUR 100m by end of this year, expect to see full effect of the programme from 2026 onwards. Structural changes last year (e.g. divestments in...
We think Fortum''s special dividend really is ''special'' and is unlikely to be repeated next year, so its main effect will be to make multiples look better when the stock goes ex-div in April. But on our new marked-to-market numbers, that effect is short-lived as lower Nordic forward prices progressively erode EPS/DPS by FY27. We cut our TP by 7% on lower medium-term achieved prices. Special means special Our interpretation of the CEO''s comments on the call was that we shouldn''t expect Tuesday''s EUR0.50 special dividend announcement to turn into a series of special payouts in future years: the co guided to DPS returning to the headline 60-90% payout policy, and on our updated ests the balance sheet will not be as over-capitalised in Dec''25 as it was in Dec''24. The co also explicitly ruled out share buybacks. Therefore, we don''t see enhanced shareholder returns as a likely catalyst from here. Nordic power prices likely to erode mid-term consensus Fortum has suffered a material decline in mid-to-long term Nordic forward prices. For instance we estimate that including area premiums, 2028 indicated Nordic forward prices have fallen from cEUR45/MWh in mid-2024 to cEUR38/MWh today. That is significant for EPS. The company cited recent weather as the culprit, but we note longer-term forwards have fallen by more than nearer-term ones. This could place negative pressure on consensus earnings / terminal price assumptions, and might lower the price-base for long-term PPA negotiations e.g. with data centre offtakers. Cutting numbers and PT We cut our FY27 EPS by 12% on lower forward prices which drives a 7% cut in our TP from EUR12.5 to EUR11.6. When the stock goes ex-div EUR1.40 in April it should briefly put the shares on an attractive-looking c7% yield but we expect this to dilute to c5.5% by FY27 due to falling achieved power prices, which would be in line with the co''s long-term average yield.
Overall view on the call: Suggestion from the CEO was that this really was a ''special'' dividend- i.e. there should not be an expectation that we get an annual cash sweep and further blockbuster DPS in future years. Other than that, nothing hugely new on the key fundamentals in our view other than emphasising that Nordic power prices are currently depressed due to unfavourable warm/wet/windy weather and that this is disrupting the forward curve further out to the end of the decade. The stock will have a big ex-dividend in ~April, so expect debate from here to be on where multiples / yield settles after that. Key points from the call: . Special dividend. Decision to pay a special dividend was because balance sheet has got even stronger than last year, was taken in light of current investment pipeline and liquidity surplus amidst declining deposit rates. CEO said we should expect a reversion to the normal 60-90% payout policy going forward. The suggestion seems to be that this is genuinely a one-off and no hint that they would do another special next year. Also, interesting that lower deposit rates was part of the decision - short rates (Euribor) have come down a lot recently. . Special dividend payment. Will be paid in one go, worth EUR1.256bn in Q2. Going forward will look to split it into two payments. . Share buyback. CEO stated co prefers cash dividends and does not intend to do buybacks. . Balance sheet and leverage. Aim is to maintain BBB flat rating, max headroom remains 2-2.5x EBITDA, want to maintain a certain level of flexibility and note that forward power prices are lower so leverage will come up over time, hence only going to 1x with today''s special dividend. . Nordic power market conditions. Decline in the long forward curve (2030 Nordpool price now at EUR41/MWh vs. EUR48/MWh in the autumn) is just a function of unfavourable weather in 2024/recently, which has knocked-on down the forward curve. Inconclusive comments on whether this has...
BNPP Exane View: Mixed bag - earnings are a 7% miss for the FY on the back of weak 4Q operating performance in generation and customer solutions, and nuclear waste provision updates booked through the associate line. However, co has announced a EUR0.50 special dividend (on top of a slightly weak underlying EUR0.90 DPS) - special divi had been a key bull case on the stock recently. FY net debt is also a little better than cons. although worse than our est. Performance today likely to come down to the value placed upon the special dividend - we would argue it doesn''t necessarily signal anything new, given the under-levered balance sheet was already well-known. Fortum has released its FY24 results. The key highlights are: . Comparable operating profit slight miss, EUR1,178m vs. Vara consensus EUR1,201m (-2%) . Comparable EPS miss, EUR1.00 vs. Vara consensus EUR1.08 (-7%) . Underlying DPS EUR0.90 vs. Vara consensus EUR1.03 (-13%), but co has announced a EUR0.50 special dividend top-up taking total DPS to EUR1.40, and unclear to what extent the expectation of a special had impacted consensus . Dec''24 net debt EUR0.37bn vs. Bbg consensus EUR0.47bn Divisional highlights are: . Generation comparable operating profit slight miss, EUR1,218m vs. Vara consensus EUR1,244m (-2%) - co citing lower Nordic spot prices due to higher reservoir levels, increased renewable power output and warm weather . Consumer solutions comparable operating profit miss, EUR76m vs. Vara consensus EUR81m (-6%) . Other comparable operating profit -EUR116m vs. Vara consensus -EUR129m Hedging/optimisation: . 2025 hedging: now 75% hedged at EUR42.0/MWh (vs. previously 65% at EUR42.0/MWh), implying EUR42/MWh on incrementally hedged volumes . 2026 hedging: now 45% hedged at EUR41.0/MWh (vs. previously 40% at EUR41.0/MWh), implying EUR41/MWh on incrementally hedged volumes . Optimisation premium reached 8.7 EUR/MWh in 2024, slightly exceeding annual target of 6-8 EUR/MWh Conference call 9am UKT. Webcast: https://fortum.videosync....
Fortum just held a virtual debrief for sellside analysts after yesterday''s results: As usual the session focused on points of detail, but we thought the comments on collateral (gradually posting less of it given a move to off-exchange bilateral power sales), latest thoughts on a potential Microsoft PPA, and earnings run-rates for the relatively-material Other segment were relevant. Key points from the debrief QandA: . Ability to capture long term Nordpool prices. Current 2030 Nordpool prices of EUR47/MWh showing on power exchanges aren''t very liquid and mgmt. played down ability to hedge at these prices. Most of the effort to increase long term hedge ratios is being targeted in the B2B/bilateral market hence off-exchange. . Potential Microsoft PPA. Would be about 5TWh in total. Unclear whether MS will use a single supplier or spread the PPA across multiple generators. Fortum would also need to consider credit exposure if it was offered the full 5TWh. Currently in waiting mode as the project clears permitting hurdles, ''will take some years to get it up and running''. . Behind-the-meter PPAs and grid constraints. Fortum do not see the same grid constraints in the Nordics that have incentivised behind-the-meter PPAs in the US. Therefore don''t see need for behind the meter PPAs in Finland and Sweden - offtakers can draw power easily from the grid which is mostly CO2-free. . Run-rate EBIT for the Other segment. The Other segment includes three components: 1/ the part of the Circular Solutions business to be sold in 4Q, with last 12 months EBIT (comparable operating profit) of only EUR3m, 2/ the part of the Circular Solutions business to be retained, with L12m EBIT loss of c.EUR-25m, 3/ central and innovation costs with L12m EBIT of c.EUR-140m. . Collateral and margining. Margining levels are now back to normalised levels: cEUR200m net position at 3Q24 vs. EUR5bn+ in 2022. Power sales are gradually shifting to bilateral B2B channels and away from exchanges, and under...
As Fortum continues to sell assets and signal declining capex, it is gradually winding down its net debt, to the extent that we now forecast an average of only 0.1x ND/EBITDA over 2024-30. That theoretically gives the company close to EUR3bn of balance sheet headroom - enough to buy back half of its free float if mgmt. were so-inclined. But in line with past results, Fortum gave no signs of wishing to deploy its spare capital. As a result, we struggle to see catalysts and remain at Underperform. Building a war chest, but for what? On the 3Q call Fortum updated on several anticipated cash inflows in Q4, including from the sale of its recycling unit and its recent settlement with Vestas. On our updated numbers we now expect the company to end the year with less than EUR300m of net debt, against EBITDA of ~EUR1.5bn. The company continues to remind investors that it could carry up to 2.5x ND/EBITDA, which would imply close to EUR3bn balance sheet headroom (more if spend on accretive acquisitions) - yet, Fortum continues to talk down the notion of either spending the money or returning it to shareholders, instead citing a need to retain a buffer for future commodity price and collateral volatility. A handful of new comments on the 3Q call suggested the co might be willing to make bolt-on acquisitions in the Nordics but would not go further afield to invest in e.g. new nuclear in the UK. And there was once again no engagement with the notion of a large capital return either via a special dividend or share buybacks. Still waiting on evidence of data centre PPA upside There were no new PPA signings in the quarter and the QandA discussion on the topic was not much different to the 2Q call, with Fortum expressing interest in signing long term PPAs with data centre offtakers, but not suggesting anything imminent is on the horizon. We continue to be sceptical that Fortum could sign a PPA with both a material volume and uplift to currently achieved prices. Updating ests....
Overall view on the call: A few minor tidbits on net debt evolution, potential for bolt-on acquisitions and the recent settlement with Vestas, but nothing game-changing on the important issues in our view: there remains little sign that Fortum is poised to sign a material data centre PPA, nor that they will do anything significant with their still-growing spare balance sheet capacity. Key points from the call: . Data centre PPAs. No new PPAs signed in 3Q but still in regular discussions with offtakers. There is demand for 5-8 year tenors but Fortum are ideally looking to extend rolling hedges for longer than that. Re: Microsoft data centre project (where Fortum has a heat offtake contract)- is proceeding well with good progress on permits, but timing of PPA and supplier selection is up to Microsoft, ''naturally we are keen to discuss a PPA with them''. Doesn''t really suggest there is anything imminent on the PPA front in our view. . Power demand. The Finnish TSO has slightly lowered its expectation of power demand by 2030, from 131TWh to 126TWh (vs. 85TWh today). As of today, demand across the Nordics has returned to pre-crisis levels, but still seeing industrial demand lagging and delays in decarbonisation/electrification projects. . Balance sheet and use of cash. Expecting to see some significant cash inflows in 4Q- proceeds from the recycling sale (c.EUR800m), income from the Vestas settlement (not disclosed, see below), income from minor tax cases and other smaller disposals. However, CFO declined to guide on FY net debt. Some interesting comments on use of balance sheet: 1/ did not engage with questions on special dividends/SBBs/debt buybacks and instead referenced the ability to pay a regular dividend of up to 90% of earnings, 2/ ruled out investing in UK new nuclear, 3/ said selective growth in core activities could include acquisitions if suitable, in hydro, nuclear, district heating. Suggests to us that a major special divi/SBB capital...
BNPP Exane view: A miss in the core generation business on lower achieved pricing, but client incoming ahead of results suggests people were expecting a weak print, and bottom-line EPS is a high-single-dig beat on a combination of good results in the ''other'' and net financial costs lines. Latter two likely to get scrutiny on the conference call, but this looks not-as-bad-as feared overall and we think the shares could react moderately positively. Net debt has also improved, now below FY Bbg consensus although tracking with our own est, and hedging results look in line. Fortum has released its 3Q24 results. The key highlights are: . Comparable operating profit in line, EUR158m vs. Vara consensus EUR157m (+1%), see below for divisional breakdown . Comparable EPS beat, EUR0.14 vs. Vara consensus EUR0.13 (+8%), looks driven by lower comparable finance costs (-EUR5m in 3Q24 vs. -EUR15m in 3Q23) and rounding effect . Net debt at EUR655m has come in below FY consensus EUR776m (no Q3 consensus) but on trajectory of our own forecast to reach cEUR350m by y/e. . Capex, tax and optimisation premium guidance is unchanged Divisional highlights are: . Generation comparable operating profit miss, EUR176m vs. Vara consensus EUR184m (-4%) due to lower spot and hedge prices . Consumer solutions comparable operating profit miss, EUR6m vs. Vara consensus EUR13m (-54%) due to lower gas sales margins . Other comparable operating profit beat, EUR(24)m vs. Vara consensus EUR(35)m (+31%), according to the PR ''mainly due to higher internal charges for services of enabling functions'' - likely to get some scrutiny on the conference call Hedging: . 2024 balance of year hedging: now 80% hedged at EUR44.0/MWh (vs. previously 75% at EUR43.0/MWh) . 2025 hedging: now 65% hedged at EUR42.0/MWh (vs. previously 60% at EUR42.0/MWh), implying EUR42/MWh on incrementally hedged volumes . 2026 hedging: newly disclosed: 40% hedged at EUR41/MWh The conference call will begin at 09:00 UK time, dial in via webcast at...
Fortum will report 3Q24 results pre-market on Tuesday 29 October. Ahead of the release we spoke to the company; we highlight that there has been no change to guidance. On numbers, we expect: . In Generation, lower EBIT YoY owing to lower achieved prices, especially due to low spot prices over the summer which were exacerbated by interconnector outages. . In Consumer Solutions, we expect a slight improvement YoY as seen already in 2Q, as adverse customer behaviour and short covering losses should start to ease. . In Other, we expect an improvement YoY due to cost savings. Our Q3 estimates imply a 68% 9M/FY comparable EBIT fill-rate based on our own FY ests (which are in line with consensus), compared to 73% last year based on 9M/FY actuals, suggesting some tension on 4Q to achieve FY guidance, if our Q3 ests prove correct. On the conference call, we expect key topics to be: . Data centre power demand and PPA outlook, especially since the recent announcement on tech company partnerships with nuclear developers . The recent announcement regarding the sale of the biobased solutions businesses in India . Hedging captures price and incremental volume hedged . Commentary and current trends on optimisation premiums . Use of balance sheet - any update on dividend, incremental organic capex, or acquisition plans
What happened? (Reuters) Fortum said on Thursday it had settled a dispute with Denmark''s Vestas over advance payments it made for equipment for Russian wind farm projects that were terminated due to sanctions. The Finnish state-controlled utility said in April last year it had begun arbitration proceedings against Vestas over sizeable advance payments for more than 50 wind turbines it had made to the company for Russian projects, agreed before Russia''s full-scale invasion of Ukraine in 2022. The settlement means both companies will waive past, present, and future claims related to the dispute. The financial impact of the settlement will be recorded as items affecting comparability in Fortum''s fourth quarter this year, the company added. BNPP Exane View: The wording of the press release suggests Fortum will receive a cash payment but it''s unclear how big it will be. We think it''s sensible to assume it will be somewhat smaller than the $200m size of the initial claim, but it will likely lead to both an income statement and cash inflow in 4Q as we understand there was no pre-existing asset or receivable in the balance sheet relating to the claim
Strong operational 2Q results helped by a few one-offs, but little from results to move the dial overall in our view - PPA demand is seen as strong, but still no sign of an as-yet-elusive major data centre PPA, and the co didn''t engage on special dividends / SBBs, suggesting these remain off the table. Data centre PPAs - still waiting for The Big One Plenty of encouraging commentary on the PPA market, emphasising rising enquiries from industrial and tech offtakers, but there was nothing tangible that would suggest a transformational PPA deal is in the pipeline. Behind-the-meter PPAs are seen as possible, but Fortum have not seen customer demand as yet. There were also interesting comments on data centre site development, see p2. Getting closer to net cash, but no movement on B/S deployment We estimate that once the Circular Solutions disposal is cashed in at y/e''24, Fortum will be on c0.2x ND/EBITDA, against management''s upper limit of 2-2.5x. This implies several EURbn of balance sheet headroom and rising, but we didn''t get any change in stance on how the headroom will be deployed - the company didn''t engage on questions re special divis. or share buybacks, suggesting that the current status quo of 90% earnings payout is the upper limit to shareholder returns in the near term. Raising ests and TP on power, disposals We raise our EPS, a little for FY24 on strong Q2 results, and substantially in FY26/27 on updated mark-to-market power. We also reflect the sale of the Circular Solutions business for more than we valued it in our SoTP. Our PT increases 5% to EUR11.9 (from EUR11.3). See p3 for details. With limited near-term organic growth drivers (recent cuts to growth capex) or catalysts (seemingly playing down special divi or SBB), and no tangible progress on data centre PPAs, we see limited impetus for money to flow into the shares - maintain Underperform.
Big Q1 beat but we think some of the drivers are transitory and we still see limited underlying organic growth or catalyst potential. The data centre angle presents an upside risk, but we don''t see any tangible sign that Fortum is poised to sign a super-material US-style premium PPA in the near term. Good first Q. But how much is sustainable? Fortum beat EPS by 20% on 1) strong optimisation premiums in generation, 2) consumer solutions recovery and 3) finance costs. We think (3) is partly sustainable but the other two probably less-so: management were a little vague on OP drivers in our view and declined to talk-up l-t guidance whilst alluding to potential delayed impact of declining guarantee of origin prices. Meanwhile in consumer solutions the suggestion was Q1 tailwinds were partly transitory with the co effectively reiterating past FY guidance. We raise EPS a touch for FY24 but cut FY25+ and lower our PT slightly. Limited additional fuel for data centre excitement Amidst the intense focus on potential data centre winners especially amongst US investors, Fortum were surprisingly reticent on the opportunity, playing down potential for US-style premium PPA deals, citing more abundant supply of firm renewables capacity in the Nordics than in the US. The co also did not announce any specific new data centre initiatives or PPA offtaker discussions. U/P thesis remains despite data centre upside risk Our view YTD on Fortum has been that with limited underlying organic growth drivers (recent decision to cut growth capex) or catalysts (played down special divi or SBB at FY23 results), there is limited impetus for money to flow into to the shares and long term earnings are likely to lag more growth-oriented peers. There is nothing specific from 1Q results to change this view. And whilst new data centre PPAs present a potential upside risk, we see the chance of an imminent, very large, premium-priced PPA big enough to meaningfully impact earnings or...
As the most exposed company in our coverage to commodity prices, and amidst intense focus on the impact of recent declines on companies across the sector, we think Fortum will remain challenged especially as the most frequently-cited catalyst of a special dividend/SBB now appears to have been ruled out. With limited underlying organic capex/growth drivers we stay at U/P. Spectre of commodity exposure lingers Nordic power slipped in January leaving benchmark calendar forwards at c.EUR40/MWh on basis of which we are c10% below consensus for this year. Furthermore, Nordic Guarantee of Origin prices (Bbg: NAEE00A4 Index) appear to have halved since the middle of last year, and although Fortum reiterated its Optimisation Premium guidance at EUR6-8/MWh, we are cautious about the effect of this price move given these certificates were cited as a relevant driver of the premium in past results presentations. We also note the recent warning from RWE, which we believe was partially driven by lower flexibility earnings, another important driver of Fortum''s optimisation premiums. Dividend catalyst has played out Some investors we spoke with in recent weeks anticipated a major move on shareholder returns: either a special dividend or a share buyback. And although we did get a gesture on dividends - Fortum paid the top end of its 60-90% payout range for FY23 DPS - the CEO appeared to rule out a special dividend or share buyback for the foreseeable future. Limited underlying growth drivers for now Fortum stated on the call that the saturated Nordic Power market does not support investment in domestic renewables. With few other organic growth avenues and recent reductions in capex guidance we see little in the way of underlying earnings growth drivers. As a result, amidst falling commodity prices and the playing-out of the dividend catalyst, we see limited impetus for inflows into the shares.
Q3 results were strong, cost cutting plan will be accretive, and lower capex will further swell Fortum''s spare balance sheet capacity, likely implying a higher dividend payout for FY23. One the other hand the cost savings were arguably priced on the spot by last week''s +8% move, and on refreshing our model we think consensus impact is likely to be offset by recent declines in Nordic power prices. Positive DPS revisions are now an upside risk, but history suggests the stock is more heavily driven by earnings, and we stay U/P for now, albeit with limited downside to our TP. ''23 DPS could approach a c10% yield for this year ... but Alongside its results Fortum announced a EUR100m 2023-26 cost saving programme and a EUR0.5bn 2023-25 reduction in capex, which will result in even further deleveraging of the balance sheet. On the cc management hinted at a revisit of shareholder returns early next year, and we now see a high chance Fortum will pay at the top end of its 60-90% DPS/EPS payout ratio guidance. Whilst this could put the shares on a double-dig divi yield for FY23 (falling to 7-8% in FY24+), evidence from earlier this year suggests the shares tend to be more driven by earnings than dividends. Cost cutting plan - logical and accretive but priced on the day We think Fortum''s savings programme makes industrial sense given the now-smaller size of the group and in isolation we expect it will be mid-to-high single digit earnings accretive. However on Fortum''s current 10x consensus P/E, the plan is worth c90c/share, equivalent to 8% of pre-results share price, which was arguably priced by an equivalent move last week. Furthermore we expect cost saving upgrades will likely be somewhat offset by the ~20% decline in Nordic power prices since Q2 results. Despite including the savings in our new ests. as well as optimisation premiums which were already in line with Fortum''s new higher guidance, we cut our FY23/24 EPS by 7% on average. Trimming EPS and TP...
Fortum surprised the market with a new cost reduction plan and a 33% reduction in its growth capex program through to 2025 from €1.5bn to €1bn. This programme has been welcomed by the market and is certainly in line with what investors have been hoping for in recent quarters for the sector, moving away from growth stocks with high capex, which are now at the bottom of the list in terms of performance.
Mix of small positives and negatives at Q2: better achieved pricing, better net debt, but weak hedging volumes and no improvement in Consumer Solutions. Overall nothing to change our investment view: we remain at Underperform on earnings volatility risk and limited catalysts vs. peers absent meaningful balance sheet deployment, which seems no closer based on the Q2 call. Power generation: improvement in achieved pricing but hedging volumes remain low Fortum''s EUR57.5/MWh achieved power sales price in Q2 was well above prevailing spot prices, and the company also achieved EUR70/MWh on incrementally hedged volumes for 2024 which compares well to the forward curve. Achieved pricing, therefore, has improved vs. Q1 but the actual volume of incremental hedging remains low, with only 5% of 2024 output sold during Q2. Fortum will start disclosing 2025 hedging next quarter and based on comments on the conference call we are cautious about the hedged volumes (by last Q3 Fortum had hedged 40% of 2024) and prices. Balance sheet capacity keeps growing and yet no deployment in sight ... Net debt fell in the quarter with operating CF and WC improvement offsetting dividend payments and capex. In addition, Fortum announced a strategic review of its Circular Solutions business (cEUR70m EBITDA but negligible EBIT) which might lead to a non-dilutive disposal which would further increase balance sheet capacity. The problem in our view is there is still no sign the company plans to deploy this capacity - decisions on nuclear and hydrogen investment are at least a year away, and mgmt. acknowledged potential to acquire Uniper''s Nordic assets might have reduced after Uniper expressed commitment to them at its recent strategy update. We didn''t get any sense that a share buyback or other form of capital return is under imminent consideration. Equivocal on consumer solutions outlook Overhedging issues in the consumer solutions division due to customers exiting expensive...
A good first half for the group, which benefited from a positive price effect with an average price 50% higher than last year thanks to hedged contracts at high prices. The deconsolidation of the Russian assets has been well absorbed despite a €1.9bn impairment while the group intends to take legal action by 2024.
Fortum reported a good start to the year with EBITDA up by 69% to €891m (cons €722m) and €781m excluding Russia. The group confirmed the future deconsolidation of its Russian assets in the Q2 with an expected impairment charge of €1.9bn after FX effects.
Some irony in 1Q results in our view as on the one hand co beat significantly on higher achieved 1Q23 power prices, but on the other hand made limited progress capturing higher power prices for 2024, with no increase in ''24 hedge ratio. Overall our fundamental view remains unchanged: we think Fortum is already well-owned by specialists, and we see earnings vol as a potential barrier to wider generalist inflows. In absence of a major catalyst (timing on eg. Uniper assets acquisition is unclear), we think the shares could drift despite optically low multiples on current power prices. This was a good quarter. But does it change fundamentals? Positive share price reaction to yesterday''s beat is understandable in our view given weak recent performance and with the EUR0.2bn EBITDA beat in isolation worth c2% of market cap. But there was nothing to change the fundamental forward outlook for the shares in our view - the stock remains cheap on multiples, but this is contingent on volatile power prices which we think could constrain generalist appetite for the shares. We think a major catalyst would be needed for the co to re-rate - and this may come in due course with deployment of Fortum''s very underlevered balance sheet - but timing on potential acquisitions, such as Uniper''s Nordic assets, is highly uncertain. Russia now deconsolidated; seizure makes sale ''complicated'' Fortum stated on the call that it retains legal title to its Russian assets and therefore in theory could still sell them, but the company sees the seizure of management control by the government as ''complicating'' a sale. Co now intends to pursue its legal rights both in Russia and under international investment treaties. We don''t think this will come as a surprise to most investors, with Russia valued at zero in most SoTPs (and cut to EUR0.5bn from EUR1bn in our SoTP today). Other key topics on the call were hedging (slightly inconclusive explanation on limited 2024 progress in our...
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.
Strategy update was positive on near term taxes, earnings and debt, and co has a more sustainable divi policy now and an emphasis on capital discipline. On the flip side, optically high divi yield and decade-low multiples are now even more tied to power prices given the new EPS-driven dividend policy, and here we remain cautious as we don''t think ''23 power/EPS/DPS is sustainable indefinitely. With the dividend question now resolved, absolute downside is likely limited from here but we maintain the relative Underperform and our preference for Centrica in the commods-driven space. Several important positives today in our view: 1) Dividend policy now better matches economic profile of the group, 2) big reduction in estimate for Finnish windfall tax, 3) better than expected debt and provisions, 4) welcome emphasis on capital discipline, incl. high IRR-WACC spread hurdle rate and focus on valuation discipline on acquisitions. Near-term numbers likely to move up, but it''s complicated We expect near-term consensus upgrades: we raise our ''23 EPS by 13% on lower Finnish windfall tax and raise our PT slightly to EUR15.5 with better taxes, debt and provisions offset by higher capex. We also raise our ''23 DPS substantially: to EUR1.39 from EUR0.81, reflecting the new payout policy on commodity-swelled earnings. However, our 2025 EPS estimate is unchanged (no material delta in 2025 taxes) and we cut our 2025 DPS by 11% to reflect the new 75% ex-Russia payout policy. This all leads to a 9.7% 2023 divi. yield, but falling to 5.4% in 2025, the latter in line with l-t average. Will new investors be buying in the next few months? With the strategy update catalyst now behind us and the stock already well-owned by specialists, future outperformance now depends on attracting incremental buyers: high-single-dig DY and decade-low multiples help, but these are contingent on power prices staying indefinitely high. And we wonder whether long-only investors are willing to buy...
Fortum disclosed overnight that it will book an additional EUR1bn of pre-tax impairments on its Russia segment in its fourth quarter 2022 results. Drivers appear to be a risk-adjusted revaluation to reflect ''prevailing market restrictions'', along with moves in the ruble. This comes on top of earlier writedowns at 1Q22, with total Russian impairments for FY22 now amounting to EUR1.7bn. We don''t see the announcement as especially meaningful since client feedback suggests most investors already value Fortum''s Russian assets at close to zero. Fortum states that the post-write down net asset value of Russian assets is 1.7bn - if anything, quite positive relative to street valuation (circa zero) and our own (valued at EUR1bn in our SoTP). On the other hand, comments that the process of selling Russian assets ''is likely to take further time and there still are significant uncertainties'' are more impactful, especially given recent headlines on other companies eg. in the Chemicals sector successfully exiting Russian investments and the notable shift in language vs. the 9m call where Fortum stated they had '' healthy interest'' and were in the ''latter part'' of the divestment process. This will likely dampen hopes that an exit of Russia could be a catalyst in the near term. Nonetheless, we don''t think this was a pivotal part of the investment case for most investors, and we think overall last night''s release justifies only a muted share price reaction if any. No change to our estimates or TP.
Fortum is a popular long on the back of simplification, power price gearing and cheap headline multiples. However we think the market hasn''t considered the potential for the dividend to hold back the shares. Moreover, our scenario work looking at Russia disposal dilution and use of balance sheet on a special divi or acquisition suggests only limited upside. There isn''t downside to our TP; we just see greater upside in peers on equivalent power price assumptions. We launch at Underperform. The positives are well understood ... we don''t deny them Management have derisked the company by exiting cleanly from Uniper, leaving Fortum as a straightforward green (mainly hydro/nuclear) power generator, with earnings geared to higher power prices, and multiples looking cheap vs. history on commodity price-swelled earnings. There is spare balance sheet capacity, which could be boosted further by a potential sale of Russian assets. But we look at the other side of the argument ... We see risks to the dividend - we assume a cut to EUR0.80 on FY22e from EUR1.14 in 2021, which would put the shares on a 5.3% yield, below the l-t average. It''s been historically rare for Fortum''s yield to fall below 5%, which could cap upside in our view, and even if the divi is not cut we believe sustainability questions could linger. We are cautious on power prices, especially ahead of the restart of Olkiluoto 3 and Ringhals 4 nuclear power plants in Feb/Mar. And our scenario work on Russia sale dilution based on the local GAAP Russian accounts, considering a subsequent special divi or acquisition suggests limited upside in either scenario, with potential execution risks on the latter. No downside to our TP - just greater upside for peers at equivalent power price assumptions Our SoTP-derived EUR15.2 target price reflects our view of limited upside for the shares due to the dividend dynamic, and our preference for peers such as RWE and Centrica with greater upside on equivalent...
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.
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.
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…
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.
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.
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.
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 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 ?
Strong Q1 Fortum performance The cold weather, which boosted heat volumes in the Solutions business and Russia, as well as the recovery in Russian spot power prices and waste and recycling activity all helped Fortum beat our expectations in Q1 ''21. The European generation business performed in line with our expectations and forward hedging was also in line with our estimates. We have increased our estimates for Russia for 2021 and beyond, and we have made small tweaks to our Uniper divisional estimates following last week''s results. Fortum and Uniper moving closer The management changes at Uniper have brought the two groups closer and this week the OneTeam results were announced, which impacts the Nordic hydro activities as well as European renewables and hydrogen future projects. The Russian operators, another obvious area of overlap, have not yet been addressed. Fortum appears happy to buy Uniper shares opportunistically in the open market and committed again to not push for a DPLA or squeeze-out before year-end. Fortum strategic reviews ongoing There was no news on the assets that Fortum is currently reviewing - Polish heat, Stockholm Exergi, Consumer Solutions - although press reports had suggested that bids for Stockholm Exergi were due last week. We would expect more information by the time of the Q2 results. Reiterate Underperform Although Uniper shares are likely to remain supported by Fortum''s market buying or possibility of a future squeeze-out, we see better fundamental upside elsewhere in the sector and highlight that on a fundamental basis the trading share price is above our price target. Fortum''s disposal program is progressing well and is alleviating the near-term balance sheet concerns we had, although the volatility of Uniper''s cash flows and a possible future squeeze-out mean that risks remain. We continue to view Fortum''s current share price as overestimating the positive impact of a higher CO2 price.
Fortum Oyj Uniper SE
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%.
Good midstream gas performance to support Uniper''s Q1 (due on 6th May) In addition to frontloading of midstream margins in Q1, market conditions have been very robust ytd and we therefore increase our annual estimates for the Global Commodities business. We forecast EUR880m group EBITDA and EUR722m group EBIT in Q1 ''21 and for the FY ''21 we are now at the upper end of group guidance at EUR952m EBIT. We also tweak our achieved power price assumptions. Our higher Uniper estimates filter through to our Fortum forecasts. Focus on new Uniper management and dividend policy This will be the first presentation of the new CEO and CFO of the group, who were appointed by the board to foster faster and better collaboration with majority (75%+) shareholder Fortum. We would be looking for an update on exactly what that entails and if it involves additional portfolio or cost shifts. We would also be looking for an update on the dividend policy with the traditional FY''20 communication previously suspended due to ''pending alignment'' with Fortum. Focus of Fortum equity story on disposal execution Based on the assets that Fortum has under strategic review, 2021 should be a big year for portfolio restructuring, which will eventually see Uniper becoming an even bigger contributor to group earnings. The recent managerial changes suggest that Fortum is already in control of Uniper''s journey and therefore a domination agreement or full squeeze out are not needed in our view. However, successful disposal execution could create some headroom to be used in that direction, followed by additional disposals. In total, we include EUR3.8bn in proceeds in our 2021 estimates and we value Consumer Solutions, which is also under strategic review, at EUR1.1bn. Reiterate Underperform In a sector that is increasingly offering defensive capex-driven growth, both Uniper and Fortum are overly exposed to fossil fuel prices. The uniqueness of that exposure appears to attract a...
A weak Q4 Fortum''s operating performance in Q4 ''20 missed our and consensus expectations by 20% at the Comparable Operating Profit, excluding Uniper which had already reported FY results but whose accounts are translated differently in Fortum. The weakness was driven by the Solutions business, impacted by low spot prices, weaker heating demand but also poor performance in waste, and by the Generation business despite achieved prices in-line with expectations. Balance sheet progress Fortum announced the sale of the Baltics heating business for ca. 15x trailing EV/EBITDA and EUR800m in proceeds. The business has been under strategic review for a little over a year, alongside the Polish heating business, which we value at EUR750m and which remains under review. Our model assumes both disposals as well as the equity stake in Stockholm Exergi for EUR2bn, although it appears that co-shareholder City of Stockholm is not interested in acquiring the stake and would have a keen interest in any buyer. We value the Consumer Solutions, which is also under strategic review, at EUR1.1bn but do not reflect a disposal yet in our numbers. If Fortum executes on all these disposals at our valuations, the balance sheet would be sustainable. But no growth To fund the dividend and the Uniper acquisition, Fortum is in effect dismantling its own assets. Ultimately, this suggests it will be left with a conventional generation business in Germany, Nordics, UK and Russia, a small renewables business mostly via equity stakes and a small heating business (~EUR100m Comparable Operating Profit). Although renewables is a growing market, Fortum''s pipeline lags significantly vs peers. Re-iterate Underperform Our 2021 EPS remains below consensus and we continue to see the shares as overvalued given the lack of growth (2020 is peak EPS on our numbers) and the short duration of the Russian cash flows. We maintain our price target at EUR18.5 per share.
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.
Strong results but lower multiple mix Uniper''s 2020 results were stronger than our expectations and although our 2021 estimates were consistent with the midpoint of the company guidance, the CFO commented that this could prove conservative, especially given the strength of the gas business in Q1 ''21 (US LNG), prompting us to increase our estimates. With the generation businesses in both Europe and Russia underperforming our estimates that leaves the volatile and unpredictable Global Commodities business contributing 44% of the group''s EBIT for 2021-24 vs 38% in the previous 4 years. Dividend uncertainty Uniper''s standalone equity story has been tied to dividend growth and although management this time last year had flagged that the pace of growth would have to slow down, it was still a surprise to see announcements on the dividend policy, including the 2021 DPS, being postponed pending alignment with majority shareholder Fortum. As we had flagged before, we do believe lower Uniper dividends are supporting Fortum''s develeraging (which in turn supports Uniper''s credit rating) and we therefore expect the eventual alignment to translate to lower dividends than previously expected for Uniper shareholders. We now assume a flat DPS going forward. Raising PT to EUR25/share Management spent much of the investor call on its ESG ambitions. Given lack of visibility we do not reflect the targeted renewables additions in our capex or earnings estimates, but do reflect the expected value creation in our SOTP PT, which thus increases to EUR25 (from EUR22). The other contributing factor to our higher valuation is lower cost of capital for the midstream gas business. Reiterate Underperform for Fortum and Uniper We continue to see Uniper shares as pricing in the squeeze-out potential from majority shareholder Fortum, the timing and likelihood of which remain uncertain. We have updated our Fortum earnings estimates to reflect our updated Uniper estimates....
The interconnection-driven convergence goes on 2021 will see the commercial operation of 2 1.4GW interconnections between Norway and UK and Norway and Germany. This has raised expectations that the (very) long-awaited convergence of Nordic power prices towards the higher German levels will finally occur this year. We analyse in this note why we remain sceptical of that prospect. Balance sheet still tight We estimate that Fortum has ca. EUR4bn worth of assets under strategic review and likely to be disposed of (~EUR2bn Stockholm Exergi, ~EUR1bn CHP assets, ~EUR1bn Consumer Solutions) which could push the average FFO / Debt over 2021-23 to 37% on our forecasts. This would allow Fortum to maintain its BBB rating (35% needed by SandP) but would in our view leave no room for Fortum to deliver the capex plan it outlined at its CMD or any flexibility if power prices turned lower. Importantly it would limit any scope for further dividend increases. No headroom for Uniper buyout The balance sheet tightness means that Fortum does not have the means for a buyout of the Uniper minorities it doesn''t own, which at market prices would cost ca. EUR3bn. Selling completely out of the Russian business (ex renewables) would raise the capital to match that outlay but would also cost ca. EUR300m of annual free cash flow on our forecasts, thus shrinking the business and putting pressure on the dividend. Reiterate Underperform We update our estimates primarily reflecting better hydro for 2021 as well as a more efficient balance sheet structure (cash vs gross debt). Our price target moves to EUR17.3 from EUR16.9. For all the disposals and Uniper acquisition in the last 10 years Fortum''s fundamental story remains one of Nordic power prices and balance sheet management. We are more cautious on both than what the share price is reflecting.
Strategic alignment at last Fortum today presented its new strategic vision, which incorporates for the first time Uniper as one of the group''s divisions, albeit still listed and with its own governance. Fortum re-iterated that it does not plan a domination agreement or squeeze-out of Uniper minorities before the end of 2021 but that possibility remains open in the future. Uniper''s CEO gave a presentation at the CMD, demonstrating that the relationship between the groups is now fully functional. Limited new information Fortum presented its decarbonisation targets but given the targets already set by the main countries in which the group operates, there were no surprises. The plan to deliver 1.5-2GW of renewable capacity, predominantly on sites currently occupied by closing / shut thermal power plants is interesting but limited visibility on the actual pathway was provided. The EUR100m synergies by 2025 was ''new news'' and is now included in our model (EUR50m at the Uniper level, EUR50m at the Fortum level) but offset in value terms by maintenance capex also being higher by ca. EUR100m (EUR700m guidance for 2021 vs EUR600m we assumed). Dividend - growth - balance sheet trilemma Fortum made it very clear that maintaining a BBB rating is very important for the group. Based on our power price forecasts, Fortum needs substantial disposals to get there, with Baltic and Polish heating (EUR1bn in our SOTP), Stockholm Exergi (EUR2bn in our SOTP) and now Consumer Solutions (EUR1bn in our SOTP) up for review. We already assume the first two are disposed, and an exit from Consumer Solutions would lead to high-single-digit EPS dilution. Unfortunately, we thus remain unconvinced of Fortum''s ability to strike a value-enhancing balance on its trilemma. Re-iterate Underperform rating on Fortum and Uniper We update our estimates for power prices, the German coal auction, maintenance capex and synergies. Our price targets remain unchanged, implying downside...
Achieved price on track to drop below EUR30/MWh for the first time The combination of strong hydrology, especially in Norway (where Fortum does not operate generation), weak power demand across Europe due to the prevailing economic conditions, and relatively low gas prices, has pushed the forward curves to extremely low levels. Fortum has not altered its hedging behaviour and is ca. 60% open for 2022, which we estimate will be the first year in which the group will record an achieved price under EUR30/MWh and EUR8/MWh lower than the 2019 recorded level. Limited growth opportunities Adjusted net debt / EBITDA is running above 4x. Even though we assume ~EUR3bn of disposals in 2021 from the assets currently under strategic review (Baltic and Polish district heating, stake in Stockholm Exergi) as well as the issuance of EUR1.5bn in hybrids, we don''t view Fortum''s balance sheet as strong enough to carry out growth investments as well as continue paying the EUR1.1 DPS; the latter is a priority in management eyes we believe. The lack of a shovel-ready pipeline of projects means that even if the balance sheet strengthened above our expectations, the growth options would be rather limited. December 3rd CMD The relationship between Fortum and Uniper should officially be put onto more solid footing when Fortum presents the joint strategy for the two groups. Other than potentially further disposals and closer co-operation in the areas of hydrogen, nuclear and hydro, we do not expect any meaningful financial benefits to become evident for the medium term from that event. Reiterate Underperform We roll forward our SOTP PT to 2021 and set it at EUR16.1. Our 2021 and 2022 estimates are below consensus and on our forecasts Fortum will again struggle to cover the dividend with earnings post 2022.
Uniper - an uneventful Q3 Uniper''s Q3 results were exactly in line with our expectations as the reversal of the frontloaded gas midstream gains, the weakness of the Russian currency and lower nuclear volumes more than offset improvements in the Russian market and the Datteln 4 commissioning. FY guidance reiterated Uniper continues to expect EUR800-1,000m FY20 EBIT and EUR600-800m FY20 adjusted net income, with the CFO suggesting that the midpoint of the guidance would require ~EUR500m Q4 EBIT which is ''not unreasonable'' given recent performance. We have lowered our FY20 EBIT and net income to reflect higher negative consolidation effects and weaker Russian FX, but increase our FY21 onwards EPS on lower minorities and financial expenses. Limited growth dynamics The Wilhelmshaven project needs to be reconfigured and participation in Russian plant upgrade auctions has been paused whilst the hydrogen economy is still years away. Absent a structural upswing in power prices, which we do not foresee, Uniper appears to us to have no organic growth outlets. As such, the joint strategy presentation with Fortum on December 3rd is crucial in determining what the Uniper equity story will be from here on. Increased volatility in Fortum''s results The inherent volatility and seasonality of Uniper''s global commodities division adds an extra element of volatility to Fortum''s results now that Uniper is fully consolidated. We are forecasting EUR151m Comparable Operating Loss and EUR155m comparable net loss for Fortum in Q3 with results due on November 17th, although the December 3rd CMD is of larger significance. Stay cautious on both Fortum and Uniper We roll forward Uniper valuation to 2021 and our TP remains EUR22/share, ~20% downside from current levels. We trim our Fortum EPS on weaker FX but maintain our TP at EUR15.7/share.
CMD due in December The new CEO has as a priority the creation of a joint strategy for Fortum and Uniper, the latter now 75% owned by the Finnish utility. This is due to be finalised by year-end and presented in a CMD in December. We understand the CMD will focus on decarbonisation and portfolio refocusing within the context of maintaining a BBB credit rating. A squeeze out or domination agreement of Uniper was ruled out until the end of 2021. But is the gap to peers too big? RWE''s surprise capital increase, ENGIE''s strategic repositioning announcement at its H1 and SSE''s emphasis on exiting non-core assets and even selling minority stakes in core network assets in order to fund renewables show that the rest of the sector (including even companies that could have been considered laggards a while back), has changed gears relative to Fortum when it comes to energy transition. Fortum has a strong carbon-free footprint but its additive contribution towards net zero is rather limited compared to peers. With management ruling out a capital increase and with the dividend policy unlikely to change, we are concerned that the CMD might be the last chance and could potentially prove a missed chance, to step up green investments and catch up with the sector. H1 ''20 performance lacklustre Q2 results disappointed especially on the back of a weak Russian performance. With FX a substantial headwind in addition to the pandemic and the expiry of the attractive CSA payments coming nearer, we continue to view that division as overvalued within the current share price. Re-iterate Underperform Our price target remains unchanged at EUR15.7/share. We tweaked our estimates and are below consensus EPS for 2021e onwards on the back of a) lower achieved power prices in the Nordics, consistent with current hedging and a small premium to the forward curve, b) lower contribution from Russia, in part due to FX and c) lower contribution from Uniper.
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).
Uniper H1 ''20 on track for FY20 Uniper''s H1 results were broadly in line with expectations and consistent with the group''s start-of-year guidance, helped by a strong start to Commodities in Q1 and high hedge levels providing protection from the reduction in power prices. Uniper increased the midpoint of its FY20 EBIT and net income guidance by EUR25m. We slightly lower our operational estimates for 2020 but below-the-line items help our 2020 EPS up 4%, still at the upper half of the company guidance range. 2021 headwinds from Russia Uniper''s achieved prices for 2021 hedging were slightly below expectations and down vs Q1. More importantly, Russia continues to struggle with weak power market conditions and yet another delay in the commissioning of Berezovskaya 3 to H1 ''21. The depreciation of the Rouble is another headwind (we use 85 in our model). Even though we are at the top end of the new, lowered, guidance for Russia in 2021, we cut our 2021 EPS by 8%. Negative read-across for Fortum Our updated Uniper estimates as well as the weaker Russian FX have a direct read-across for Fortum, which fully consolidates Uniper and generates more than 10% of its group EBIT in Russia. We lower our EPS estimates for 2020 and 2021. Reiterate Underperform rating on Uniper and Fortum Our Uniper price target is unchanged at EUR22. Although we recognise the market''s willingness to attach a premium valuation for the possibility of a future minorities buyout by Fortum, the timing, if not the realisation, of such a transaction is highly uncertain. We increase our Fortum price target to EUR15.7 to reflect higher valuation on assets under strategic review, which we expect to be sold. Although such disposals provide much needed help to the balance sheet, they increase the weight of Uniper, a structurally lower multiple business, within Fortum''s accounts. We therefore reiterate our Underperform rating. We believe investors overestimate the potential of the Nordic...
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.
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. 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.
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.
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.
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.
Fortum released a rather weak set of Q3 results, marked by the lower production of the group’s hydro-power plants following the dry weather, which was only partly offset by higher achieved prices.
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.
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.
• Higher than average water levels support Q4 results • Improvements in electricity and CO2 prices also positives • Uniper transaction should conclude the capital redeployment process
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).
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.
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.
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.
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.
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.
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%.
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).
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.
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.
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.
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.
