Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on Engie. We currently have 13 research reports from 1 professional analysts.
• 2017 results within expectations adjusted for all the multiple one-offs. • 2018 guidance and dividend payment reassuring as reshuffling strategy pays off. • Major M&A denied. Suez stake confirmed. French infrastructure law under review.
Engie’s Q3 results are slightly better than expected with adjusted revenues (including E&P as discounted operations) at €46.8bn for the nine months, which implies a 2.9% increase. In line with revenue growth, the company achieved a +3.8% increase in the adjusted EBITDA to €6.6bn. The group maintains its full-year guidance with adjusted net income of €2.4-2.6bn in the mid-range of the target. EBITDA, on the other hand, is expected to be in the lower range of expectations. The group has confirmed the disposal of its LNG upstream and midstream activities to Total for $2.04bn, including an earn-out of up to $550m. Engie will keep the downstream activities, including regasification infrastructure and retail customer sales. The completion of the deal is expected in 2018.
Engie reported an encouraging set of results for the first half, showing an acceleration of organic growth during the second quarter after the weak Q1. H1 revenues rose by 1.6% to €33.1bn (+2.6% org.). EBITDA was flat at €5.0bn (+4.0% org.), while net recurring income amounted to €1.5bn, a 4.2% increase (+15.5% org.). The group continued to improve its financial structure with a net debt reduction of €2.1bn ytd (corresponding to €22.7bn in net debt) on the back of the portfolio rotation programme. The interim dividend came to €0.35/share, to be paid in October 2017. Following the positive H1 results, management confirmed its FY2017 financial targets: Net recurring income of €2.4-2.6bn, expected at mid-range Net debt/EBITDA ratio <2.5x Cash dividend of €0.70/share with respect to 2017 Note, the disposal of the E&P activities is now treated as discontinued operations, with retroactive impacts on the P&L and cash flow statements. Thus, the 2016 figures have been entirely restated.
Engie has published its Q1-17 trading update. The figures were below expectations as, despite the 3.2% increase in revenues to €19.5bn, EBITDA declined by 3.6% to €3.3bn and operating income declined by 4.6% to €2.2bn mainly driven by low hydro production in France and the shutdown of one nuclear reactor since September 2016. The earnings results were below market expectations. Despite the weak Q1 earnings performance, the group confirmed the full year guidance (EBITDA of €10.7-11.3bn and net income of €2.4-2.6bn) as the first quarter was impacted by multiple timing impacts. However, the company’s financial situation is seeing a substantial improvement as net debt decreased by 17.7% ytd with positive operating cash flows, improving the credit ratios. This positive effect was visible despite the decrease in earnings.
The company has presented poor results, but with decreases that are lower than expected. Revenues decreased 4.6% yoy to €66.6bn, EBITDA was down 5.2% yoy to €10.7bn with a 2.7% yoy decrease organically, and adjusted net income at €2.5bn (-4.3% yoy). On a reported basis, the group finished once again in the red with reported net income at -€0.4bn driven by €3.8bn of impairments in power plants, nuclear assets and merchant activities. The dividend is maintained within expectations at €1/share for 2016 and €0.7/share for 2017 and 2018. The good news comes from the guidance, as the group expects to return to growth with EBITDA reaching €10.7-11.3bn and net income in the €2.4-2.6bn range, despite the erosion effect from the disposal of assets already achieved.
Engie, through a consortium with the Saudi Electric Company (SEC) and Saudi Aramco, has won a contract to build a 1.5GW cogeneration power plant using CCGT technology in Saudi Arabia For a total investment of $1.2bn, this would take the achieved cost of the project to $1.25m/MW, which is extremely competitive. Engie would hold a 40% stake in the project, with SEC holding 30% and Saudi Aramco the remaining 30%, which implies that Engie would have a $480m investment envelope in the project. The construction contract is attached to two 20-year contracts, whereby SEC would buy the electricity and Saudi Aramco would buy the steam and hot water produced, reducing the exposure of the project to wholesale price movements, although the achieved price for the contracts have not been disclosed. The power plant is expected to be commissioned in 2019, with the operation and maintenance of the power plant being transferred to SEC in 2018.
Engie has published its 9M trading update with revenue falling 11.1% yoy and 10.3% in organic terms ro reach €47.5bn, with EBITDA falling 5.4% yoy and -2% organically to €7.7bn. Nevertheless, operating cash flows decreased by 8.3% yoy to €6.8bn. Net debt fell by €1.9bn (-6.8% ytd), but the net debt/EBITDA ratio improved (2.38x). The results were negatively affected by commodity prices and compensated by higher infrastructure tariffs. The group confirmed its 2016 financial targets: adjusted net income group at the low end of the range of €2.4-2.7bn and EBITDA of €10.8-11.4bn.
The difficult half year of the group has been confirmed, mainly at the top-line level as it misses expectations with revenues decreasing 11.9% yoy to €33.5bn. However, the impact has been reduced due to an optimisation of the cost base with EBITDA reaching €5,651m (-7.8% yoy), mainly affected by lower commodity prices (with achieved prices), and a reduction in gas margins. Lower depreciation expenses and a reduction in impairment charges were achieved so that the operating profit increased 5.2% yoy to €3.38bn, pushing upwards in its path net income to an 11.3% yoy increase to €1,237m. On an adjusted basis, operating profit fell by 3.5% yoy to €3.5bn, providing a 1.9% organic growth, while net income decreased by 7% yoy to €1.5bn, which is in line with expectations. A €0.5/share interim dividend in cash will be paid. On the cash flow side, on top of lower earnings, the group had a negative one-off of €1.1bn of margin calls and derivatives which plunged the operating cash flow towards a 32% yoy decrease to €4.79bn. The decrease, added to the 9.6% yoy increase in capex and besides the €1.45bn from disposals and the repayment of €1.43bn of outstanding debt, made free cash flow finish in negative territory at -€657m. Despite the difficult results, the group has confirmed the full-year results with EBITDA at €10.8–11.4bn and adjusted net income in the €2.4-2.7bn range. Following the new strategy of the company, Engie has a new segment reporting in line with the new organisational structure.
Engie has provided mixed results as revenues reached €18.9bn, which is a 14.3% yoy decrease and falls short of expectations by 12%. However, given the conditions, EBITDA was strong as it fell by 1.7% yoy to €3.5bn, although on an adjusted basis it grew 2.3% where the positive results were supported by the restart of 3 reactors in Belgium and cost-cutting measures, which is in line with consensus. Moreover, operating income increased 0.4% yoy to €2.4bn and +5.9% on an adjusted basis, beating forecasts by 2%. On the other hand, operating cash flows decreased by 55% yoy, but this was mainly driven by WC movements due to the use of derivatives to cover the fall in commodity prices, and higher gas inventories. It is expected that the negative WC movements will be reversed over the year. Net debt decreased by €0.7bn due to cash generation and the first effects of the disposal programme. Following this publication, the group confirmed all its FY16 guidance: EBITDA between €10.8bn and €11.4bn, adjusted net income between €2.4bn and €2.7bn, a 2.5x net debt/EBITDA ratio and an A credit rating and a €1/share dividend to be paid in cash. The group has confirmed its intention to issue an IPO on Electrabel in 2017 (the Belgian subsidiary). The process has been started as the separation of the management of the subsidiary has already been achieved and the group is currently in legally creating an independent and separate entity.
Weak top-line performance as both revenues and EBITDA miss estimates. Revenues decreased 6.4% yoy to €69.88bn, 4% short of the forecast, with EBITDA having a similar decrease as sales (-6.6% yoy), missing forecasts by 1.2%. Adjusted operating income decreased by 11.6% yoy to €6.32bn, but the 4% fall is less dramatic than expected; however, on a reported basis it finished in negative territory due to impairments (-€8.7bn) and restructuring costs (-€870m), pushing the reported EBIT into negative territory to -€3.24bn. Due to this, the company had a reported net loss of -€4.62bn but, on an adjusted basis, net income reached €2.6bn, representing a €17% yoy decrease, 1% above estimates. Cash flows remained strong despite the decrease in EBITDA, as operating cash flows increased by 18.6% yoy helped by a substantial improvement in working capital (+€1.16bn). The improvement allowed Engie to cover a 58% increase in net capex and its dividend payments. A €1/share dividend has been proposed, to be paid in cash with a similar one expected for 2016, while dividends have been cut for 2017 and 2018 to €0.7/share to provide investors with visibility during the transition process. A radical transformation process has been put in place with €15bn of asset disposals, an increase in investment objectives, in addition to a move towards a lighter capital-intensive model with a more decentralised approach. On 2016 guidance, the group expects to achieve EBITDA between €10.8bn and €11.4bn with net income between €2.4bn and €2.7bn. An A credit rating is targeted with a 2.5x net debt/EBITDA ratio.
The Q3 trading update has confirmed that 2015 is a difficult year for the group. Sales fell by 1.5% ytd to €53.5bn and -4.6% on an organic basis. Gas and LNG revenues decreased by 38% ytd and Europe by 2.1% ytd, offset by strong performances in International (+10.4%), Infrastructure (+7.7%) and Energy services (4.1%). EBITDA reached €8.1bn, a 7.5% ytd decrease, mainly due to lower power and commodity prices and the effects on E&P and LNG activities, in addition to the unavailability of Belgium nuclear plants. Despite this, operating cash flow remains strong at €7.4bn, 8% above the previous year's levels, being able to withstand the capex increase. Nevertheless, investment has been adjusted to growth opportunities, as there has been a further reduction of €200m in E&P (an additional 10% decrease). Impairments are expected on the FY results due to worsening market conditions, with a downward adjustment of the carrying values of certain assets, although the amount has not been stated. However, it is important to remember the group has a robust balance sheet, one of the strongest in the sector. The group maintains its full-year guidance: EBITDA between €11.5bn and €12bn and adjusted net income €2.75-3.05bn, although it now expects the latter towards the lower end of the range. The dividend policy is maintained, with no objective to change it as cash flow generation remains strong.
Less dramatic than expected H1 results, as the group continues to feel the downward pressure from both electricity and commodity markets. Revenues decreased 2% yoy to €38.52bn, which is in line with expectations. EBITDA decreased by 4.79% yoy to €6.12bn, although the decrease is less than expected. The operating profit of the group decreased by 13% yoy to €3.61bn, but is still 4% above consensus. But the best results are provided on the bottom line, as adjusted net income reached €1.8bn, which was a 28.2% yoy decrease, but still 20.2% above consensus. The reported net income nonetheless reached €1.11bn due to the €700m impairment on gas assets. Net debt decreased by €700m ytd to reach €26.8bn, which is 3.18% better than consensus (net of hybrids), with a decrease in the effective interest rate to 3.0% from 3.14% in December 2014. The group will pay an interim dividend of €0.5 per share and confirmed its FY 2015 guidance: adjusted net income of between €2.85bn and €3.15bn and a dividend payout of 65-75% of the adjusted net income with a minimum payment of €1 per share. Furthermore, an agreement has been reached with the Belgian government confirming the extension life of two nuclear reactors (Doel 1 and 2). Furthermore, concerning the nuclear contribution settlements in dispute for overpaid nuclear taxes, the group has also achieved an agreement concerning the nuclear tax payments: €200m for 2015, €130m for 2016 and a 40% margin from 2017 onwards.
The restructuring of the group is gaining momentum. Engie has just acquired a 95% stake in SolaireDirect with 100% of the voting rights for something just below €200m. With this, the group becomes the leader in French solar power and increases its renewable footprint worldwide as SolaireDirect already has a presence in 15 different countries. The news follows the possible IPO of the group's Belgian generation production as it expects to list its Belgian nuclear assets under the Electrabel name.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Engie. We currently have 13 research reports from 1 professional analysts.
We have completed another refresh of our value style screen, first established as of 12 May 2015. As usual the screen selected the 25 stocks exhibiting the most extreme value characteristics from our universe, and we have chosen 10 stocks to focus on. Since the last refresh, two days before the last general election, which resulted in a hung parliament, the screen has performed a little better than the small-cap index with our focus stocks outperforming by about 500bps. The weighting to UK consumer stocks noted last time detracted from performance, which came as little surprise given our cautious stance, much discussed in our other strategy work this year. One might have expected more consumer exposure in the refreshed screen given this year’s severe underperformance, but it appears forecasts have been similarly downgraded, keeping much of the sector outside our value criteria
Companies: AUG EHG GOAL MMH RTHM SDY TEF VANL
Gattaca plc (GATC.L, 161p/£49.7m) Interim results to 31 January 2018 (19.04.18) | RTC Group plc (RTC.L, 56p/£8.2m) AGM trading update (18.04.18)
Companies: Gattaca RTC Group
With Q1 2018 behind us, we evaluate the performance of the tech sector versus the broader market, and peers across the pond to see how the London listed technology universe compares to its bigger and better known US counterparts. We examine if the UK listed tech sector is overvalued on a relative basis. No tech sector review can be complete without analysing the performance of the big eight mega tech companies who had a very good year and currently have an aggregate market capitalisation of US$4.79tn, roughly the size of the Japanese economy.
Companies: APC ECSC EUSP FDM GETB SPRP SNX
We note today’s update on the distribution agreement (DA) termination notice and the final results. The two new pieces of news, in our view, are that the gross book value of the disputed stock was £4.3m at 31 March 2018 and that Sprue has entered into a £7m revolving credit facility with HSBC and drawn down £3m of this on 29 March 2018. Our forecasts, target price and recommendation will remain under review until the 2017 final results are reported for which, no date has yet been confirmed.
Companies: Sprue Aegis
Hays plc (HAS.L, 182p/£2,639m) Q3 trading update to March 2018 (12.04.18) | Hydrogen Group plc (HYDG.L, 36.5p/£12.2m) Final results to 31 December 2018 (10.04.18) | PageGroup plc (PAGE.L, 537p/£1,755m) Q1 trading update to 31 March 2018 (11.04.18) | Parity Group plc (PTY.L, 11.1p/£11.3m) Final results to 31 December 2018 (10.04.18) | Robert Walters plc (RWA.L, 699p/£528m) Q1 trading update to 31 March 2018 (10.04.18)
Companies: HAS HYDG PAGE PTY RWA
Clarkson has warned that it expects current year earnings to be materially below last year’s level and current expectations. Volatility in financial markets and concerns about a possible trade war have supressed activity in shipping asset transactions.
The AGM trading update signals that it remains confident of achieving existing market expectations. Some customer programmes have recently seen lower than expected volumes, although new business continues to be won and management is confident it can bridge the gap. The growth story remains intact – sales growth has been robust; the scale of this growth has been a challenge but profit delivery is now in much sharper focus. The group intends to supplement the board and has already implemented operational changes that have already resulted in an improvement in gross margin. The shares now trade at a discount to its IPO price and we see strong value in the shares for their robust expected long-term sales growth and gross margin recovery.
Companies: Velocity Composites
The Board have announced a new accounting policy which increases P&L provisioning against procurement revenues to a higher level than the previously announced 20%. This has a material impact on the FY17 and future income statements but does not impact the underlying cash flows or debt position of the company.
This month’s feature article is the first publication of the 2017 global pharmaceutical industry statistics from which the global and US rankings of the top 15 drug companies are derived. Comparisons are made with historical data to show how different company strategies have evolved. In addition, an analysis of the evolution of biopharmaceuical drugs has been made, together with a key sub-set, namely drugs derived from antibody technology, which now represent 12% of the entire market. Two more drugs joined the $100bn club in 2017.
Companies: OPM ABZA AVO AGY APH ARBB AVCT BNO BUR CMH CLIG COS DNL EVG GTLY GDR INL KOOV MCL MUR NSF OBT OXB NIPT PHP RE/ REDX SCLP SCE SIXH TRX TON VAL
Two former AIM companies could be in the FTSE 100 index in the near future following the successful bids by Melrose Industries for GKN and GVC for Ladbrokes Coral. Melrose has been on the brink of the FTSE 100 for a while and if a constituent company of the FTSE 100 is acquired than it can be replaced by the acquirer when it is eligible. Melrose is already on the reserve list for inclusion in the FTSE 100, following the March 2018 quarterly review.
Companies: PTSG JDG TRCS SRB TAP KETL
FY2017 has been a period of excellent headway and Flowtech has entered FY2018 with confidence. As previously noted, management has successfully integrated six acquisitions over 2017, while operational improvements and a more favourable backdrop has driven a 24% increase in adjusted PBT to £8.7m (in line with ZC forecast). Revenue growth of 46% to £78.3m is split 8% organic and 38% through acquisition, with year-end net debt at £14.9m (FY2016 £13.1m). The platform for further progress is strong, underpinned by the acquisition of Balu in March 2018 for an EV of £10.2m, alongside the equity fundraise of £10.5m. The shorter-term focus is now on extracting efficiencies across the enlarged Group, particularly with regards to extracting procurement benefits. Nevertheless, there are significant opportunities for further consolidation beyond this, particularly in mainland Europe, where there is scope to leverage Flowtech’s existing brand relationships that in turn can drive long term earnings progression.
Companies: Flowtech Fluidpower
Interims to February show operating profit up by 45% to £0.55m on 3.6% revenue growth to £8.6m. The results vindicate APC’s strategy of focusing upon driving high margin, design-in distribution sales as well as the benefits of a lower fixed cost base. APC acquired First Byte Micro in January which has provided a significant boost to its APC Locator’s business. The group continues to focus on its three-strand growth strategy. The shares have risen by 13% in the last three months. We retain our FY2018E PBT of £0.68m and 10p TP. Buy.
Companies: APC Technology Group
GYG has delivered a robust set of 2017 results, which are marginally ahead of our forecasts reset in November. Strong growth was delivered at all levels, and was primarily organic growth, with 14.7% revenue growth leading to 7.6% growth in adjusted EBITDA as it continues to invest in growth. We are maintaining our forecasts on the back of these results, and are comfortable with our assumptions given the strength of its order book, the growth dynamics of the market and its market leading position within this. We note the shares have been de-rated of late, and believe the FCF yield (>10% from 2018E), post-tax ROCE approaching 30%, dividend yield in excess of 6% and organic revenue growth (>10%) remains highly attractive.
The developer of advanced security and surveillance has today issued a strong AGM statement reporting that Q1 revenues were slightly ahead of management's expectations and almost 15% up on the same period in 2017. Order intake was boosted by £1.5m of radio communication contracts received from the MOD announced in February, although excluding those contracts, order intake was still higher than expected. The majority of the above MOD orders were scheduled for delivery in H1.
Companies: Petards Group
discoverIE has confirmed trading for the full year to March 2018 has been in line with management expectations reflecting strong growth in year-on-year profitability. This has been supported by sales growth of +15% and rising margins (both gross and operating). We make no changes to our forecasts or target price and reiterate our view that discoverIE is successfully targeting structural growth markets.
Companies: Discoverie Group