Morningstar | E.On's 9M Results Boosted by One-Offs; Shares Look Fairly Valued
We reiterate our fair value estimate of EUR 8.60 per share after E.On released nine-month results above consensus expectations and indicated it should reach the upper half of its full-year targets. Shares look fairly valued.Adjusted EBIT grew 11% to EUR 2.35 billion, 5% above consensus expectations and implying a 17% growth in the third quarter after 8% in the first half. Adjusted net income grew by 25% to EUR 1.2 billion, 8% above consensus expectations, accelerating from the first half's 19% growth. The corporate functions and other segment was the main improvement driver in the third quarter, with structural losses reduced by the Phoenix cost-savings program and by favorable derivatives results. Also, a change in the accounting of third-party charges in the United Kingdom had a favorable impact in the third quarter that shouldn't persist into the last quarter. In line with the second quarter, German networks benefited from positive one-offs in the third quarter
E.On indicated that it should reach the upper end of its 2018 EBIT and net income targets of EUR 2.8 billion-EUR 3 billion and EUR 1.3 billion-EUR 1.5 billion, respectively, versus our EUR 2.85 billion and EUR 1.4 billion estimates that we should tweak upwards. That implies an EBIT decline in the fourth quarter to be driven by reversal of positive one-offs, which boosted nine-month results, expected negative one-offs in Turkey in the last quarter, a price cap on vulnerable customers in the U.K., and expiration of renewables' support scheme, among others.
For 2019, the group expects flattish EBIT due to a sizable impact from the default tariff cap in the U.K. versus previous guidance of 3%-4% annual EBIT growth through 2020. This is roughly in line with our EUR 3 billion before restructuring costs, which we leave unchanged.
E.ON is an investor-owned energy company. The Generation global unit consists of all Co.'s existing (fossil and nuclear) generation assets in Europe. The Renewables unit is engaged in managing Co.'s carbonsourcing and renewables businesses. The Global Commodities unit buys and sells electricity, natural gas, liquefied natural gas, oil, coal, freight, biomass, and carbon allowances. The Exploration & Production unit is a active in the focus regions of the North Sea (U.K., Norway), Russia and North Africa. The New Build & Technology unit include Co.'s project-management and engineering operations to support the construction of new power plants and the operation of existing plants.
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