Engie and Veolia: Political Uncertainty in France Offers Shareholder Entry Point

On June 9, French President Emmanuel Macron called a snap parliamentary election after his party was trounced by the right-wing populist party Rassemblement National at the European elections. The two-round parliamentary election will be held on June 30 and July 7. Since the announcement, the spread between the 10-year French and German government bond yield rose by 26 basis points to 0.74%. French stocks underperformed, including large utilities Engie and Veolia. The former decreased by 10% between June 7 and June 13 and the latter by 5%, while the Morningstar Europe utilities index was down by 1%. We think the selloff is overdone and offers an entry point. We confirm our fair value estimates of EUR 18 for Engie and EUR 38.5 for Veolia that yield 8.1% and 5.3%, respectively.