GDF SUEZ: solid results, confirmation of guidance

GDF Suez reports 9M11 Group Revenue of € 65.4bn (65.7 kbcs, 65.2 css) and Group EBITDA of € 12.08bn (11.93 kbcs, 11.94 css). On a quarterly basis 3Q EBITDA came in at € 3,24bn vs. our € 3.04bn and css’ € 3.05bn.

Confirmation of 2011 guidance:
The Group reconfirms equal or superior net earnings per share in 2011 taking into accounts capital gains on announced disposals. The Group also reaffirms its policy of providing shareholders sustainable and competitive return with a stable or increased dividend in 2011 versus 2010 dividend. Furthermore, the previous guidance of a 2011 EBITDA target between € 17.0-17.5 bn before the impact of weather and French regulated tariffs was re-iterated. These items are in line with our forecasts.

Balance sheet still solid
Net debt came in at € 41.7bn, or € 1bn higher vs. end of June 2011. Net debt changes mainly related to the proceeds received from the 25% stake sale in GRTgaz, the acquisition of gas storage in Germany, the impact of a € 137m share buy back (our of € 500m), and a negative Fx and market-to-market effect of € 900m. Gross capex at € 7.6bn end September 2011, represents ~73% of our full year impact. Management also confirmed the sale of G6 Rete Gas and Bristol water since September 30, which should have a total impact of € 1.1bn on Group’s net debt. With a gearing of 53.3% and net debt/EBITDA of 2.5x GDF Suez has one of the most solid balance sheets in the European utilities universe. The level of net debt is set to contract further as GDF Suez is receiving the proceeds from earlier disposals.

More interaction with financial markets
Management noted during the call that it wants to add more interaction with financial markets and will host more conference calls on quarterly results, and special items. This is clearly an improvement from before which we welcome.

Comments re Belgian government re-iterated
GDF Suez’ CEO mentions that if Belgium does not respect earlier signed agreement it will contest this by all legal means, and also through the International Arbitrage Commission. It will also re-examine its strategy and life time extension of the three oldest nuclear power stations. The company will re-asses its Group nuclear strategy mid 2012 based on stress tests performed.

Conclusion:
3Q11 EBITDA came in ahead of expectations and the company clearly confirms its attractive dividend strategy. At the current share price, and taking into account a stable dividend y/y, GDF Suez is trading at a 7.2% gross yield. Furthermore, with a solid balance sheet and the intention to increase interaction with financial markets, we remain constructive on the Group. We re-iterate our Accumulate rating and € 24/sh TP. At our TP GDF Suez would trade at an EV/REBITDA 2013 of 6.5x and P/E 2013 of 11.5x.