EUR 850.00 For Business Accounts Only

Morningstar | EDF Updated Star Rating from 31 Jul 2018

EDF has released first-half results above expectations and raised full-year guidance. We will likely raise our 2018 earning estimates accordingly, but the impact on our long-term estimates will be limited. For now, we retain our fair value estimate of EUR 10.6 per share and our no-moat, negative trend ratings.

EBITDA came in at EUR 8.23 billion, up 19% organically and slightly above expectations. Recurring net income grew 27% to EUR 1.74 billion, well above consensus' EUR 1.4 billion, owing to better equity income.

The main positive driver was French generation and supply, which saw EBITDA jump by 46% to EUR 3.58 billion on increasing hydro and nuclear volumes and better market conditions. This performance is well above our EUR 5.8 billion full-year EBITDA estimate implying 18% growth but a 9% decline in the second half. Our downside mostly comes from assuming too-low hydro volumes, as first-half volumes were among the best ever recorded. We also factor in cost-cutting of  EUR 150 million , which was already achieved in the first half. Still, the group did not raise its 2019 cost savings target of EUR 1.1 billion. We will raise our 2018 estimate for the division but don't anticipate a material change to our long-term estimates. Another positive driver was regulated business in France, where EBITDA increased by 11% due to a tariff increase, weather, and grid connections. We will raise our 2018 forecast for the division to take into account the latter two drivers; impact on our long-term forecasts will be limited. On the negative side, U.K. profitability was hit by unplanned nuclear outages, which should persist in the second half and will drive reduction in our 2018 estimate.

The group raised its 2018 EBITDA guidance from EUR 14.6 billion-EUR 15.3 billion to EUR 14.8 billion-EUR 15.3 billion versus our EUR 14.8 billion estimate. The group also reduced its net debt/EBITDA target from a ceiling of 2.7 times to 2.5 times due to the EBITDA target increase.