Report
Tancrede Fulop
EUR 850.00 For Business Accounts Only

Morningstar | Innogy Reports a Poor Start to 2019 and Confirms FY Guidance

We reiterate our fair value estimate of EUR 40 per share along with our no-moat, stable trend ratings after Innogy released first-quarter results slightly below consensus' expectations and reiterated its full-year guidance. Our fair value estimate is in line with the takeover price from E.On. Headwinds experienced by Innogy's retail businesses, which will be acquired by E.On, highlight the weak rationale of the deal with RWE for the latter.

Adjusted EBIT tumbled by 22% to EUR 0.96 billion. As expected, the main negative driver was U.K. retail business Npower, which posted an EBIT loss of EUR 45 million, in line with the EUR 250 million guided for the full year. The EUR 90 million deterioration versus 2018 was driven by the tariff cap implementation, churn and a rise in restructuring provisions. Retail profitability also deteriorated in all other markets because increasing costs and mild weather were not passed on. There is also a concerning regulatory intervention in Poland and Hungary. In the latter an increase in wholesale costs, which benefited the state-owned company, could not be passed on. Grid & infrastructures' adjusted EBIT dropped by 17% after the disposal of the Czech gas business in February, increasing staff costs in Germany and lower income from grid sales, to be partially received throughout the rest of 2019.

On a positive note, in line with the first-quarter results of other European utilities, renewables' adjusted EBIT jumped by 30% to EUR 200 million because of higher market prices, better wind conditions and capacity commissioning.

Net debt increased by EUR 1.9 billion during the quarter to EUR 18.9 billion mainly because of IFRS 16. The EUR 2.3 billion seasonal working capital deterioration was mitigated by EUR 1.95 billion cash proceeds from disposals.

The group confirmed its 2019 outlook of an adjusted EBIT and net income of about EUR 2.3 billion and EUR 850 million respectively, in line with our estimates.
Underlying
Innogy SE

Innogy SE is a Germany-based company, which is primarily involved in the utilities industry. The Company operates as a provider of electricity and natural gas. The Company's operations are divided into three segments, namely Renewables, Grid and Infrastructure and Retail. The Company operates plants for electricity generation and production from renewable energy sources. The Company is active in Germany, the Netherlands, Austria, Poland, Romania, Croatia, Slovakia, Slovenia, the United Kingdom, among others.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Tancrede Fulop

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