EUR 850.00 For Business Accounts Only

Morningstar | E.On Sets 2019 Guidance Slightly Below Expectations; Shares Overvalued

We reiterate our EUR 8.60 fair value estimate along with our no-moat, negative trend ratings after E.On released 2018 results above our estimates and set 2019 guidance in line with our outlook but slightly below consensus' expectations. The shares look overvalued.

Recurring EBIT decreased 3% to EUR 3 billion, in line with guidance, though above consensus' EUR 2.9 billion and our EUR 2.85 billion forecast. Recurring EBIT decreased 33% in the fourth quarter after 11% growth at the end of September. The main negative driver was the networks division, whose EBIT decreased 9% to EUR 1.84 billion for 2018, including a 30% drop in the fourth quarter, on a returns cut for the German gas networks, a positive one-off in 2017, and a disposal. At the end of September, these headwinds had been mitigated by positive one-offs. Customer solutions EBIT decreased 4% on adverse conditions in the U.K. Renewables EBIT grew 15% to EUR 521 million, below our EUR 570 million forecast, on commissioning of new capacity in the U.K. and the U.S., which more than offset unfavorable wind conditions. The latter explains the downside to our estimate.

For 2019, E.On targets adjusted EBIT of EUR 2.9 billion-3.1 billion, in line with consensus' and our EUR 2.98 billion outlook. The group expects net income of EUR 1.4 billion-1.6 billion. The middle of the latter range is in line with our EUR 1.49 billion forecast but slightly below consensus' EUR 1.55 billion outlook. The 2018 dividend is confirmed at EUR 0.43 per share, implying a yield of 4.7%, below the sector average of 5.1%. For 2019, the group guides for a dividend per share of EUR 0.46, slightly below consensus' EUR 0.48 though above our EUR 0.44 forecast. Through 2020, the group reiterates its guidance of annual growth in EBIT and EPS of 3%-4% and 5%-10%, respectively, on a stand-alone basis (excluding Innogy), slightly above our estimates. Given the 2019 guidance, that implies steep growth in 2020, the drivers of which are uncertain.

2018 adjusted net income increased 5.5% to EUR 1.5 billion, above our EUR 1.4 billion forecast. The bottom line was boosted by a lower tax rate than last year and by lower interest costs, reflecting the decrease in net financial debt debt driven by the sale of the Uniper stake. Restating from divestments, net financial debt would have increased by EUR 1.5 billion.