Engie Earnings: Continuing Strong Trading Performance Drives a Good Start To the Year; Shares Cheap

No-moat Engie ENGI revealed a strong rebound in its first-quarter EBIT, well above FactSet consensus, due to the continuing strong performance of the general energy management and sales business. This led the firm to guide for the upper end of its 2023 guidance, which still seems conservative.

As part of the upcoming transfer of all its nuclear provisions to a dedicated structure managed by the Belgian government, Engie is negotiating their amount with the state and aims to reach an agreement by end-June. After the EUR 3.3 billion provisions rise imposed by the nuclear watchdog last December, there’s a risk of a further increase, which weighs on the share price. Still, valuation sensitivity is limited as a EUR 1 billion rise would shave only EUR 0.3 off per share. In any case, this would be offset by the upward revision of our 2023 earnings forecasts after the May 11 strong print. Accordingly, we maintain our EUR 17 fair value.

Ordinary EBIT went up by 19% to EUR 4.2 billion. The main positive driver is the global energy management and sales business whose EBIT jumped by nearly 160% to EUR 1.6 billion on: 1) the booking of provisions related to the Gazprom procurement contract in 2022, 2) reversal of market reserves in the wake of normalizing market conditions, and 3) positive impact of deals signed at high prices in 2022. Renewables’ EBIT increased by 35% on better hydro conditions, higher achieved power prices, and new capacity. On the downside, networks’ EBIT decreased by 5% chiefly as lower gas volumes in France and Germany more than offset the indexation to high inflation of networks in Latin America. Retail’s EBIT tumbled by 71% as the year-ago quarter was boosted by excess procurement volumes sold at high market prices.

Engie guides for the upper end of its 2023 guidance of EUR 3.4 billion-EUR 4 billion for recurring net income. We’ll adjust our EUR 3.7 billion estimate above the high end of guidance, which seems conservative after the May 11 strong print.