EUR 850.00 For Business Accounts Only

Morningstar | Electricite de France Raises Its EBITDA Guidance; Reward-to-Risk Ratio Remains Appealing

We reiterate our EUR 15 per share fair value estimate and our no-moat and stable trend ratings after Electricite de France released its nine-month sales and raised its full-year EBITDA guidance.

Our fair value estimate is based on long-term French power prices of EUR 44/MWh and incorporates a 25% likelihood of a break-up. Marking our forecast to current forward power prices of EUR 50/MWh would add EUR 2 per share. This would more than offset the EUR 1.40 per share deduction if the break-up fails to materialize. Bottom line, we consider this a positive reward-to-risk ratio.

The group indicates that it could reach the upper end of its EUR 14.8 billion-EUR 15.3 billion 2018 EBITDA guidance versus our EUR 15.2 billion estimate and consensus' EUR 15.1 billion. Still, the group tweaks downward its nuclear production outlook from above 395 TWh to a 393-396 TWh range, versus our 395 TWh, due to unplanned outages at Dampierre and Chooz nuclear plants.

In our view, lower production will be largely offset by the 33% rebound in nine-month French hydro production, versus our 19% rebound estimate for the full year. This is the main driver of the rise in EBITDA guidance in our view, though the group also mentioned good performance in Italy--where new guidance is in line with our estimate--and the trading division. Altogether, adjusting our hydro and nuclear volumes would add around EUR 80 million to our full-year EBITDA without impacting subsequent years.

Nine-month turnover came in at EUR 49.6 billion, up by 5.3% organically. All divisions contributed positively. French generation and supply's turnover increased by 6% mostly bolstered by drivers not impacting profitability. French regulated activities' turnover increased by 2% on higher tariffs. Trading's turnover doubled notably on good momentum of the LNG business. This hints of a continuation of the first-half profitability trend when the trading group's EBITDA surged by 80% versus 40% for our full-year estimate.