1H11 results hampered by adverse weather
GDF Suez publishes 1H11 numbers on Wednesday 10 August before market opening. A webcast is scheduled the same day at 8.30 CET (www.gdfsuez.com). We expect 1H11 EBITDA to come in at € 8,675m, up 5.9% y/y, with the main delta versus last years’ € 8,194m stemming from the first time consolidation of International Power (from February 2011) and Agbar (Suez Environnement). However, lower hedged power prices across Europe (foremost Benedelux), warm weather during Q2 (EnergyFrance, Infrastructure) and a still negative oil-to-gas spread will curtail a strong performance. We forecast adjusted net income at € 2,394m (down 13.6%), adversely impacted by rising D&A and financial costs.
Guidance more important than numbers:
Main point of attention will be the 2011 guidance which calls for an EBITDA ranging between € 17-17.5bn excluding weather and regulatory changes. Due to a warmer than average 2nd quarter and the freeze in French gas tariffs we believe the actual number only to come in at € 16.8bn. Would management re-iterate its guidance we should see a positive share price reaction after consensus has been come down to below € 17.0bn. We expect management to reiterate 2013 EBITDA guidance of € 20bn+.
We believe management will also confirm its goal of a dividend at least equal to that paid out in 2010. This should not come as a surprise given GDF Suez’ solid track record towards shareholder remuneration and the cash (to be) received from the disposal of assets and stakes. The guidance that net income will be higher than last year’s level is not really a focus point given the expected gains on activities sold.
Sentiment remains hampered by regulatory risk, weak gas markets and low macro sentiment:
We expect management to be askedto comment on the French gas tariff freeze and the potential higher (double?) Belgian nuclear tax. Management will likely reiterate that they don’t want to pay more than the € 250m agreed with the previous Belgian government, while closely monitoring the situation in France where the tariff discussions could take until next year’s elections. An update on the global gas market will likely also be provided with the company currently only taking into account a tightening of the market by 2013/2014 with the spread between oil-linked contracts and spot gas remaining ~€ 5-6/MWh. Giving the current high reserve margins across Europe, the weak macro trend doesn’t bode well for electricity demand growth, dark and spark spreads and electricity and gas price recovery.
We have adjusted our 2011-13 numbers downwards in the wake of the 1H11 results due to adverse weather and believe there should be an upside from these levels. With a challenging macro environment, the pace of gas and power price evolution could remain hampered, hence we stick to our Accumulate rating with a TP of € 28/sh (down from € 30/sh).