Great 9M23, guidance maintained but headwinds to come in Q4

A solid 9M23 with a cumulated €7.8bn of EBITDA that represents about 90% of the maintained full year €8.6-€8.8bn guidance. While we found this guidance relatively cautious at the end of the H1, E.ON decided to maintain it by announcing several headwinds in Q4, citing increased volatility against a backdrop of geopolitical tension and price reductions for electricity and gas consumers.

H1 23: Above expectations and upwards revision to the 2023 guidance

A very good first semester with strong growth and contributions from the two main businesses of networks and energy supply. E.ON revised upwards its FY23 guidance with the EBITDA outlook increased by €800m (c.10%) in the back of the strong operating performance, one-off effects from market risk buffers release and improved visibility by the end of the year.

Q1-23: Normalization in energy prices gives E.On a breath of fresh air

A good start to the year for the leading German networks operator, which reported strong operational growth, with a normalization in energy prices supporting both the networks and customer solutions segments. The capex and investment policy seems to be bearing fruit, enabling the group to remain confident in its ability to meet its 2023 outlook through to 2027, although it remains cautious in that the European energy crisis is far from over, highlighting the group’s sensitivity to a potential ri

FY2022: A reassuring recovery in Q4-2022 after a disappointing third quarter

After a disappointing Q3-2022, which failed to beat estimates, E.On managed to meet its guidance and delivered a stronger-than-expected operational performance amidst a disruptive 2022, driven by energy networks and customer solutions. These solid results confirmed the robust and resilient business model of the German networks operator that has decided to strengthen its strong position in the energy networks and infrastructures business by increasing its investment plans by €6bn by 2027.

Q3 22: Damage limitation from the robust business model

E.ON posted another fall in its quarterly results, with a 3% drop in EBITDA. The challenging environment created by the energy crisis prevented E.ON from beating estimates even if the group remains confident in its ability to achieve its FY2022 outlook, despite a temporary earnings shift in the energy networks segment. However, thanks to its resilient model, the group managed to limit the damage and increase the EBITDA in its core business.

H1 22: slightly reassuring but not out of the woods yet

E.ON released a relatively reassuring set of half-year results. While the op. performance was still down yoy, the group’s damage control initiatives saw net income come in c.6% above the consensus. The ability to pass-through procurements costs in subsequent quarters will be key and is the focus of attention. In this context, E.ON confirmed all the FY22 guidance. This fits with our current estimates. Our positive view is confirmed but caution is advised.

Q1 22: trust is the key to the E.ON / market couple

E.ON’s Q1 22 exhibited relatively weak results due to the inability to pass on higher energy costs fully to end-customers. But the group made a point of showing confidence in its ability to recover these losses in subsequent quarters. Our view is rather cautious, but management’s pitch is convincing and, at least for now, backed by fragile visibility amid regulatory uncertainties. Full-year guidance is confirmed, but one thing is clear: no margin for error in the rest of 2022.

FY21: lack of visibility undermines confidence in the stock

A rather solid set of FY21 results, higher than the consensus but slightly lower than our estimates, is not enough to offset the uncertainties to come. The impact of network losses and a risky exposure to the supply business are likely to tip the balance into negative territory regarding the exposure to soaring energy prices in 2022. Added to the Russian-linked uncertainties (NS1, gas supply), E.ON should remain the persona non grata of cautious investors’ portfolios until there is more visibili

CMD: business as usual

E.ON unveiled its 2026 roadmap. The focus was on capex and network expansion to offset the lower regulated returns in the coming years. In all, nothing surprising, which from a market point of view means disappointment. The fnancial targets are in line with expectations while funding issues prevent further aggressiveness. E.ON is staying the course, business as usual. And this consequently lengthens the road to a rerating.

9M 21: improvement in indebtedness two weeks before the CMD

E.ON released a set of strong but expected 9M 21 results, with adjusted EBIT up by 46%. Positive effects from favourable weather conditions were the main driver. It allows the group to confirm its FY21 guidance, upgraded in H1. Note a substantial improvement on the net debt, even if several one-offs have contributed. Next trigger: the CMD on 23 November 2021.

Nuke optionality

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

Pushed by sales and supply activities

The network giant beat estimates by 6% to reach €1.66bn in terms of EBIT (+14% yoy). Indeed, as the main growth driver, E.ON can be fully satisfied with its restructuring plan in the UK which pushed the Customer Solutions business up to return to profitability. Furthermore, all short and mid-term guidances are confirmed. Strengthened by a good start to the year, we stand at the top of targets. Positive view reiterated.

Good year, better outlook: all lights are green

E.on released slightly above expectations FY20 figures, but were globally in line with our estimates. Net income is better but the dividend slightly worse. The impact of COVID-19 remains limited and should be recovered. The good news comes from targets for the next three years that are revised upward. A good point is also on the initiated deleveraging process from 6x to 4.8-5.2x net debt/EBITDA. Our positive view is confirmed.

Lower voltage expected for FY20

Compared to H1 19 pro forma, adjusted EBIT was down by 7%, to €2.7bn, due to lower volumes (related to lockdowns) and lower regulated WACC in Sweden. The group revised downwards its FY20 EBIT and net income guidance, the mid-points are down respectively 7% and 11%. However, assuming no further severe lockdowns, the dividend policy as well as the 2022 targets are confirmed. We confirm our positive long-term recommendation on the back of the RAB’s growth potential and expected synergies.

Q1 20 - in line

EBIT decreased by 6% to €1.5bn due to lower allowed WACC for assets in Sweden, mild weather in Europe and higher depreciation. In Q1, the impact of COVID-19 was limited. Following EBIT, adjusted net income was down 8% to €691m. In short, the figures are roughly in line with expectations and the group is showing great resilience in the face of current uncertainties.

Activity building after period of strategic change

eEnergy’s H1 update confirms that trading remains in line with expectations with momentum building at the start H2’24. As previously reported, H1 started slowly as a result of weak market conditions and balance sheet constraints, which were resolved by the sale of the Energy Management (EM) division in Q1. Encouragingly, market conditions have improved and full year revenue guidance has been maintained at £25-26m. We make no changes to our underlying forecasts or fair value of 13p/ share. In o

Judges Scientific+ (JDG, House Stock at 10,100p) - Geotek acquisition, synergistic

Judges Scientific+ (JDG, House Stock at 11,300p) - Challenging H1 trading update, forecasts reduced

Invinity Energy Systems - Inaugural Capital Markets Day

Invinity hosted their inaugural capital markets day at their manufacturing facilities in Scotland. The day marked the official opening of the company’s new 26,000 sq. ft assembly facility in Motherwell and included a tour of their current Bathgate facility near Edinburgh, consisting of a deep dive into their technology, manufacturing and R&D focus areas. Our key takeaway from the event is that Invinity are well placed to take advantage of accelerating demand for long duration electricity storage

AUCTUS ON FRIDAY - 26/07/2024

AUCTUS PUBLICATIONS ________________________________________ ADX Energy (ADX AU)C; target of A$0.75 per share: Diversified and high impact newsflow over the balance of 2024 – ADX has confirmed a very busy programme of activity from September. The overall unrisked value of the programme is ~A$1.70 per share, which represents 17x the current share price. In early September, ADX will drill the Anshof-2A side track. The well is expected to intersect thick Eocene reservoirs similar to that encountere

discoverIE Group - FY25 earnings expectations maintained

discoverIE’s Q125 trading update confirmed that underlying earnings expectations for FY25 are unchanged. While the Q125 revenue decline reflects the lower bookings environment in previous quarters, book-to-bill was above one and bookings increased organically year-on-year despite ongoing destocking by customers in the industrial market. Robust gross margins and a well-controlled cost base support the company’s 13.5% target operating margin for FY25 and we maintain our forecasts.

Strix (KETL LN) - H1 trading reassuring, strong cash performance

Strix has released a trading update for the six months to June (H1 24) confirming that trading remains in line with expectations (Zeus FY24e PBT: £24.2m). Cash generation in the period has been strong and follows an exceptional performance in FY23, where management converted over 100% of EBITDA into operating cash flow. Net debt is now comfortably below 2.0x and Zeus forecast it to reach 1.7x by year end. Leverage risk has materially reduced in the last six to eight months and gearing could reac

PROGRESSIVE: Van Elle: First in line for housing and infrastructure boost

We initiate coverage of Van Elle, the UK’s largest ground engineering and foundations specialist. Van Elle is at the ‘front end’ of the construction process and, in our view, will be among the first companies to benefit from national priorities of housebuilding and investment in creaking water and energy transmission sectors, all of which Van Elle has targeted for growth. These sectors should be supported by the Labour government, which has pledged 1.5 million new homes and aims to speed up plan

Judges Scientific+ (JDG, House Stock at 9,500p) - Developing the portfolio

Judges Scientific+ (JDG, House Stock at 10,350p) - Refinancing to 2028

Morning Note – 25 July 2024

Hybridan Small Cap Feast 07/07/23

Joiners: No joiners today. Leavers: Medica Group plc has left the Premium Segment of the Main Market. What’s cooking in the IPO kitchen?** Blackpoint Biotech plc, a medical cannabinoids company established to fulfil gaps in the medical cannabis market by creating products that provide fast onset of action and accurate dosing, intends to join intends to join the Access Segment of the AQSE Growth Market. Expected Admission 20 July 2023. Metals One Plc, a company focusing on acquiring natural resou

PROGRESSIVE: Forterra: Housebuilding slowdown dampens demand

Forterra has indicated that recent industry-wide data showing declines in brick deliveries as a result of lower housebuilding volumes is likely to impact its expected FY23 volumes, leading the group to moderate current year guidance for revenue and PBT. Forterra has responded by outlining further steps to align production with demand, but notes that heightened political focus on increasing housing supply reinforces its long-term confidence.

PROGRESSIVE: SDI Group: Solid update reflects strong second half

SDI Group’s trading update for the year ended 30 April 2024 is in line with current guidance for FY24, with good momentum heading into FY25. This reflects the hands-on approach under the new CEO, addressing short-term issues that had led to underperformance in some businesses. The underlying portfolio performed well in terms of profitability and cash generation, with improved trading in a number of businesses. The increased cashflow in H2 and significant headroom within its banking facilities le

Morning Note – 22 March 2024