Company Reports

We confirm our EUR 62 fair value estimate based on midcycle power price assumptions of EUR 60/megawatt-hour after wide-moat Verbund released first-half results hit by lower achieved power prices and narrowed its 2024 guidance. Shares appear overvalued.

Verbund is the leading power producer in Austria and has a unique power-generation mix with hydro accounting for more than 90% of power output. It operates hydro assets through long-term concessions.

Utilities have reversed part of their first quarter’s fall, thanks to a strong rebound in power prices. Moreover, the deep undervaluation of renewables developers has driven takeovers by big investment firms at very high multiples. Neoen’s main shareholders accepted an offer at 18 times the EBITDA. The sector is still significantly lagging the market in 2024 because of high interest rates. Should they fall, it would boost the sector.

We confirm our EUR 59 fair value estimate based on midcycle power price assumptions of EUR 60/megawatt-hour after wide-moat Verbund released first-quarter results hit by lower achieved power prices, but tweaked its 2024 guidance upward due to very favorable hydro conditions and the rebound of power prices since February. Shares appear overvalued.

European utilities have reversed their outperformance in the fourth quarter of 2023 because of a fall in wholesale power prices in the wake of gas prices after a very mild winter, and a pickup in interest rates due to inflation receding more slowly than expected. The former led to some of the companies, most exposed to power prices, cutting their guidance for 2024.

We confirm our EUR 59 fair value estimate based on our midcycle power price assumption of EUR 60/megawatt-hour after wide-moat Verbund released 2023 results, boosted by a jump in the achieved power price. On the back of those strong results, the firm intends to pay a special dividend of EUR 0.75 on top of the regular dividend of EUR 3.4, involving a yield of 6.0%. Otherwise, there were no real surprises in this set of results since Verbund set its 2024 guidance well below expectations on Feb. 9 because of the recent fall in wholesale power prices. All in all, we view the shares as overvalued.

Verbund is the leading power producer in Austria and has a unique power-generation mix with hydro accounting for more than 90% of power output. It operates hydro assets through long-term concessions.

Wide-moat Verbund has warned on its 2024 profits because of the material drop in wholesale European power prices over the last few months. We don't expect to materially change our EUR 68 fair value estimate based on conservative EUR 60/megawatt-hour midcycle power prices. Shares look fairly valued.

Verbund is the leading power producer in Austria and has a unique power-generation mix with hydro accounting for more than 90% of power output. It operates hydro assets through long-term concessions.

European utilities are up by 14% year to date, slightly underperforming the broader European markets. Since the end of September, the sector strongly outperformed thanks to the rally in government bonds and solid third-quarter results that drove multiple guidance upgrades although growth slowed down from the second quarter due to higher comps. All in all, companies that are the most exposed to commodity prices are set to exceed their 2022 record profits in 2023. Meanwhile, firms with big retail businesses that were hit by a margin squeeze because of the energy crisis in 2022 will post a significant rebound in earnings.

Wide-moat Verbund released solid nine-month results and upped its 2023 guidance. The latter points to a 2023 dividend of EUR 3.42, 5% below last year that was boosted by a special dividend and implying a 4.2% yield. We confirm our EUR 66 fair value estimate based on our long-term power price assumption of EUR 60 per megawatt hour. We calculate that the current share price implies a long-term power price of EUR 90/MWh.

European utilities have underperformed the European market by 4% year to date with most of the underperformance occurring in the third quarter because of the rise in interest rates. This overshadowed strong second-quarter results driven by the easing of the energy crisis, persisting commodity price volatility, and the hedging improvement. These drivers have persisted in the third quarter. Moreover, some power price clawbacks expired at the end of June like in Germany and Belgium. On the flip side, the comparison basis will be tougher as of the third quarter.

Wide-moat Verbund released good first-first half results and narrowed its 2023 guidance range. We confirm our EUR 66 fair value estimate based on long-term power price assumption of EUR 60 per megawatt hour. We calculate that the current share price implies a long-term power price of EUR 70/MWh.

Verbund is the leading power producer in Austria and has a unique power-generation mix with hydro accounting for more than 90% of power output. It operates hydro assets through long-term concessions.

We initiate coverage of Verbund with a EUR 66 fair value estimate, wide economic moat rating, and High Morningstar Uncertainty Rating. Our fair value estimate involves a 2023 P/E of 10.1 and enterprise value/EBITDA of 6.2 due to the record profits that we expect in 2023 on the back of high achieved power prices. We don't see enough margin of safety to buy shares at the current price.