EUR 850.00 For Business Accounts Only

Morningstar | Engie's 9M Results in Line With Expectations, Fiscal-Year Guidance Maintained; Shares Undervalued

We reiterate our EUR 15.50 fair value estimate and our no-moat, stable moat trend ratings after Engie released nine-month results in line with expectations and stated that it will reach the bottom end of its net income guidance, in line with our expectations. Shares are undervalued despite solid fundamentals. CMD due in February 2019 will bring more visibility on strategy and capital allocation.

EBITDA came in at EUR 6.5 billion, up by 5% organically and flattish on a reported basis. On the positive side, networks' EBITDA grew 4% over the first nine-month after growing 3% in the first half. They were boosted by storage regulation in France and by international networks. Renewables and contracted generation EBITDA grew 3%, versus 4% in the first half, on better hydro conditions in France and Brazil. Client solutions' EBITDA grew 1%, meaning that the 1% decline in the first half was offset during the third quarter. We understand that tuck-in acquisitions boosted the business while the backdrop started to improve in France retail gas, whose EBITDA declined by 7% in the third quarter versus negative 13% in the first half. As expected, the main negative driver was unplanned nuclear outages in Belgium, which shaved EUR 200 million off EBITDA. In line with September's announcement, negative full-year impact should amount to EUR 600 million.

The group maintains its net recurring income guidance range of  EUR 2.45 billion-EUR 2.65 billion, though clarifying that it expects to reach the low end, in line with our EUR 2.47 billion estimate. It is based on an EBITDA of EUR 9.2 billion versus previous indicative range of EUR 9.3 billion-EUR 9.7 billion. We will lower our 2018 EBITDA of EUR 9.45 billion which does not include unplanned nuclear outages. Better performance in global energy management should mitigate the impact. On the bottom line, it should be fully offset by a lower tax rate owing to the activation of deferred tax assets and lower finance costs.