Investor's window  |  February 06, 2013 16:35:35

Giant with feet of clay


In mid-November last year issued a management company called E.ON profit warning. Thus, notice that to reach the previously predicted economic results. As justification was then reported reduced energy demand (especially for natural gas and electricity).   For energy production while promoting renewable sources is increasing, which, in falling demand is enhanced by an overall decline in prices. The message was the November report is clear and immediately dispose of shares investors E.ON.

Detailed information to shareholders not seen yet and they had to wait for them around the next three months, up to 30 January, when management held a meeting with analysts. Topics for discussion were yet more than enough and I divided them into five basic areas. Thus, corporate strategy (geographic and segment focus), outlook (at least the framework estimates), debt relief plan (whether the firm pays a commitment to reduce the ratio of net debt to three times EBITDA, also speculated to issue convertible bonds or new shares directly), cost reduction (especially reducing investment costs) and dividend policy.

So it was not a few uncertainties and tensions increase with the approaching meeting. Eventually, it became apparent that investors fear was unnecessary. Management did not introduce any new message downright negative, while you might find some new positive information. First was reported higher than expected net profit (4.3 billion euros, vs. Market consensus of EUR 4.15 billion), and then came the updated plan to increase intensive program of asset fire sales. Instead of the originally planned 15 billion company now plans to sell assets worth up to 20 billion. Greater focus on sale of assets decreases the likelihood that management would be forced to issue new shares or convertible bonds in order to achieve a lower ratio of net debt to EBITDA.

Overall, we can say that the analysis was not at all disappointing day, which the market originally feared. However, this does not mean that the future E.ON be only positive. Still, the energy market is significantly distorted by subsidies for producers using alternative energy sources, and also due to the now almost non-functional European market for emission allowances. Until these two fundamental problems of classical utilities improve, E.ON shareholders will not be able to be satisfied.

George Šimara analyst Cyrrus

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