TAKING THE PULSE: The market expects some solid performances
from utilities in the final quarter of 2008 and over the full year,
with forward sales and hedging helping to delay the full impact of
much weaker power prices.
However, power demand is a more immediate concern, and analysts
will look closely at this set of earnings to assess the impact of
weakening industrial and commercial activity.
Meanwhile, companies may have to cut earnings guidance, which
were already considered as conservative, given the sharp fall in
power prices.
Observers of the sector will also look closely at how the
utilities plan to fund their operations this year and how they will
tailor their investment plans to an environment of weakening energy
prices and expensive credit.
As Citigroup's utilities analysts recently pointed out, however,
it isn't all doom and gloom for investors in utilities as the
companies' valuation is now more attractive relative to the broader
equity market.
COMPANIES TO WATCH:
--- Enel SpA (ENEL.MI) - (Feb. 3; Preliminary '08 results)
---
MARKET EXPECTATIONS: Analysts expect a solid set of 2008
results, lifted by the consolidation of its 67% stake in Spain's
Endesa SA (ELE.MC) and Italian generation. Enel's practice of
selling forward two years of electricity generation has shielded it
from the recent drop in prices following weaker commodities.
Revenue is estimated to climb about 38% to EUR60.5 billion, while
Ebitda is forecast to advance about 43% to EUR14.3 billion.
MAIN FOCUS: Observers will be on the lookout for a lower net
debt level, any comment on the dividend and asset disposals. Eyes
will also be on possible Enel plans to buy out Acciona SA's
(ANA.MC) 25% stake in Endesa allowing the Italian utility to fully
run the Madrid-based company.
--- GDF Suez (GSZ.FR) (2008 revenues on Feb. 2; full results on
March 5) ---
MARKET EXPECTATIONS: The company should perform solidly enough
in the fourth quarter, although "not stellar" in the words of one
analyst. In 2009, however, the situation could change, with the
liquefied natural gas market among potential areas of weakness.
Brokerage Kepler Capital Markets expects momentum to be "downhill
from here," even though some analysts continue to praise the
company's profile relative to peers.
MAIN FOCUS: When the merged company made its stock market debut
in July, many observers saw its 2010 guidance of earnings before
interest, taxes, depreciation and amortization of EUR17 billion as
conservative amid high power prices. Today's economic woes have
changed that: analysts are now a lot less bullish on the company's
ability to hit the target, and await the management's comments. The
continuing saga of the companies tax liabilities in Belgium, home
of the company's nuclear power stations, is another issue of note.
Other questions include whether the company will adjust its current
investment plans and how it plans to preserve its balance
sheet.
--- E.ON AG (EAON.XE) - (4Q/FY08 Results) - Mar. 10 ---
MARKET EXPECTATIONS: E.ON's solid operating earnings trend is
expected to have continued in the fourth quarter and full-year. The
company sells the bulk of its power production in forward contracts
and therefore should have locked in high power prices. The recent
fall in electricity prices is unlikely to show in earnings before
2010, analysts say. Possible revaluation of gas derivatives could
hit the bottom line.
MAIN FOCUS: Analysts are keen to see E.ON's new medium-term
earnings targets, which the company will release with 2008
full-year earnings. So far, E.ON has pledged to reach adjusted
earnings before interest and taxes to EUR12.4 billion in 2010.
Further focus will be on E.ON's dividend proposal for 2008.
--- Electricite de France SA (102421.FR) (2008 earnings - Feb.
12) ---
MARKET EXPECTATIONS: The company expects profit excluding
non-recurring items not to exceed the 2007 level, and analysts see
this as the likely scenario. SocGen sees the company giving new
medium-term objectives after a year of expansion. The cold
conditions in France so far this winter, which left EDF with less
power to sell on the wholesale market, may have also drag, as it is
more lucrative than the regulated domestic market.
MAIN FOCUS: EDF has said a provision related to the Tartam
regulated tariff for industrial power clients will hurt its
earnings, but there's still some confusion as to the impact. The
majority-state-owned company's investment plans, linked closely to
the government's aim of stimulating the economy, could feed doubts
among some investors. Meanwhile, the company has taken on debt to
fund an acquisition spree, and some observers say the company may
sell an asset to reduce gearing.
--- Veolia Environnement (VE) (2008 earnings March 6) ---
MARKET EXPECTATIONS: After several profit warnings, the company
held firm to its most recent guidance in January, when it announced
a change of finance director. Observers say they doubt the company
would give such confirmation if it was going to miss its operating
cash flow goal. Still, the company could perhaps introduce an
exceptional charge lower down the income statement, one analyst
said. Weakness in the waste business, as volumes decline and scrap
sells for less, are likely to hit earnings.
MAIN FOCUS: The shares took a hit recently after Veolia changed
its finance director, who many analysts saw as a force for rigor at
the company. There is a lot of interest in why a former banker with
experience of dealmaking has come to the post, and analysts will
watch anything he says about growth or divestments very closely.
After multiple profit warnings and the erosion of market confidence
in the management, Veolia's outlook for 2009 is more important than
ever. The reported interest of some U.S. investment funds in the
company is another key theme.
--- RWE AG (RWE.XE) (4Q/FY08 Results) - Feb. 26 ---
MARKET EXPECTATIONS: Observers expect power generation to remain
RWE's main profit driver amid high electricity prices. Like E.ON,
RWE sells the vast majority of its power production in forward
contracts, so fourth-quarter earnings won't reflect the recent
decline in prices. RWE has said it already sold more than 90% of
2009 and 70% of 2010 power production. The company has also
recently given an upbeat power consumption outlook, saying demand
for electricity will remain robust despite falling industrial
activity.
MAIN FOCUS: RWE has pledged to provide a new medium-term
earnings target when it releases 2008 results. So far the company
has targeted a 5% compound annual growth rate for operating profit
through 2012 and 5% to 10% CAGR for recurrent net profit through
2012. Analysts will further focus on whether RWE will fulfill its
commitment to increase the dividend payout ratio for 2008 to 70% to
80% of recurrent net profit. A possible sale of further American
Water shares is another key theme.
Company Web sites: http://www.edf.com
http://www.veolia-finance.com
http://www.enel.com
http://www.rwe.com
http://www.eon.com
-By Adam Mitchell, Dow Jones Newswires, +33 1 40171756;
adam.mitchell@dowjones.com
(Jan Hromadko in Frankfurt and Liam Moloney in Rome, contributed
to this report.)
Click here to go to Dow Jones NewsPlus, a web front
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