Morningstar | Engie Announces Additional Nuclear Outages but Reiterates 2018 Guidance; Shares Undervalued
On Sept. 21, Engie announced significant additional nuclear outages but reiterated its 2018 net income guidance of EUR 2.45 billion-EUR 2.65 billion. This news reflects the fact that Belgian nuclear is the main source of uncertainties and negative news flow for Engie. We could lower our long-term earnings forecasts to bake in lower nuclear production on a permanent basis. However, the impact on our fair value estimate would be limited. For the moment, we reiterate our fair value estimate of EUR 15.50, along with our no-moat, stable trend ratings. Shares are significantly undervalued.Engie also announced 12 months of additional outages for its Tihange 2 and Tihange 3 reactors due to flaws on the concrete ceilings of the buildings annexed to reactors. The EBITDA and net income impact will amount to EUR 250 million in 2018. This warning on nuclear production is the third this year; the cumulative impact will amount to around EUR 600 million on 2018 EBITDA. This will be offset at the net income level by better performance of energy management and generation, according to the group. Below the EBITDA line, lower taxes due to deferred tax asset utilization and lower financial costs will also help. Altogether, we should not make material changes to our 2018 EUR 2.46 billion net income estimate despite lowering our EBITDA forecast.
The biggest impact of the outage will come in 2019, as there will be seven months of outages versus five months in 2018. In all, Engie guides for 33 TWh of production in 2019, implying a capacity factor of 74%. This is below our already cautious assumption of 36 TWh. The 3 TWh downside will shave off around EURÂ 100Â million of our 2019 EBITDA and 2% of our net income. Asked about a normalised capacity factor during the conference call, the CFO guided for 75%-80% before mentioning that the group will communicate further on that. Factoring in this 75%-80% range versus our current 87% assumption would cut our fair value estimate by around 4%.
Engie is an industrial group, based in France, active in the fields of gas, electricity, energy services and the environment. Co. is an energy provider across the entire energy chain, in electricity and in natural gas, including: purchase, production and commercialization of natural gas and electricity; transport, distribution, management and development of major natural gas infrastructures; design and commercialization of energy services and environment-related services. Co.'s activities are conducted through five segments: Energy Europe, Energy International, Global Gas and LNG, Infrastructures, and Energy Services.
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