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Posted at 24/4/2015 19:03 by waldron PARIS--Goodbye GDF Suez SA. Hello Engie.French power utility GDF Suez said on Friday it was changing its name to "Engie," in a bid to reflect a changing energy industry and prepare for the departure of the company's longtime chief executive Gérard Mestrallet. Mr. Mestrallet's scheduled exit comes after 20 years at the helm of a company he has transformed through a series of large mergers and acquisitions. He said he and his anointed successor Isabelle Kocher, who is currently GDF Suez's deputy CEO, decided to change the name. "I personify the construction of the group and its history, Isabelle personifies its future," Mr. Mestrallet, 66, told a news conference as he unveiled the new name and a new logo. He said the new name is shorter--two syllables instead of five--and is easier to associate with the group's business: energy. The management decided to spell the name Engie--pronounced like the Rolling Stones song Angie--because it's reminiscent of the French word "énergie" to keep faithful to its roots. Ms. Kocher, 49, said the new name looks and sounds like a woman's first name. Mr. Mestrallet said a female name is "a coincidence that doesn't displease" him as the company will soon be run by two women, Ms. Kocher and CFO Judith Hartmann. Ms. Kocher's anticipated elevation to the top job would make her the only woman to run one of the 40 top French companies included in the blue chip index CAC 40. Since he took over as CEO of Suez 20 years ago, Mr. Mestrallet has turned the 150-year-old company into a behemoth, with almost 150,000 employees in 70 countries. He successively merged it with water and waste utility Lyonnaise des Eaux--which was later spun off as Suez Environnement--Belgi Most recently, under his guidance, the company has sought to expand mainly in Latin America and other emerging markets, as energy demand in Western Europe stagnated over the past few years. At the same time, European subsidies for renewable energy has made many conventional power plants unprofitable. Mr. Mestrallet said the idea is to gradually place the company's different units under the "Engie" brand. The renaming of the company will cost GDF Suez several million euros, Mr. Mestrallet said, but that isn't much for a company that reported sales worth close to EUR75 billion ($81.2 billion) last year, he added. The new name will be set up gradually and approved definitely at the general shareholders' meeting in mid-2016 when he is due to leave the company after reaching retirement age. GDF Suez is the latest large French company to move to change its name in recent years, often to boost an international profile or to better reflect identity after asset disposals. Luxury and retail group PPR was renamed Kering SA in 2013 and France Téléco Write to Inti Landauro at inti.landauro@wsj.co Access Investor Kit for GDF SUEZ SA Visit hxxp://www.companysp Subscribe to WSJ: |
Posted at 05/3/2015 06:17 by waldron EUBUSINESSGDF Suez in 2.5-bn-euro bond issue, including rare zero-coupon bond 05 March 2015, 01:12 CET — filed under: France, energy, business, bonds, GDFSuez (PARIS) - French energy giant GDF Suez said it sold four tranches of debt Wednesday for a total value of 2.5 billion euros ($2.7 billion), including a rare zero-coupon bond. "The coupons for each tranche are the lowest obtained by GDF Suez at these maturities in euros. In particular, the two-year tranche bears a zero-percent coupon," the group said in a statement. The Wall Street Journal called the launch of the zero-coupon two-year bond "a true rarity" and said GDF Suez was the first company in over 14 years to issue bonds in euros offering no regular payments to investors. The move comes as bond yields have slipped into negative territory ahead of a massive quantitative easing programme announced by the European Central Bank. The ECB is on Thursday expected to unveil details of the initiative, which will see the central bank buy 60 billion euros of bonds public and private bonds each month for 18 months. The GDF Suez sale offered a 500-million-euro 20-year bond that will pay interest of 1.5 percent and a 750-million-euro bond maturing in March 2026 with a coupon of 1.0 percent. A 750-million-euro bond maturing in March 2022 with a coupon fixed at 0.5 percent and a 500-million-euro two-year bond with a zero-percent coupon were also offered. "The average coupon of the issue is 0.75 percent and the average maturity is 9.8 years," the statement said. "This transaction shows the investors' trust in GDF Suez signature," the group's CEO Gerard Mestrallet added. "It is aligned with the strategy of dynamic management of the GDF Suez balance sheet and allows the group to secure its refinancing needs in exceptionally favourable market conditions currently prevailing in the eurozone." Unlike regular bonds, zero-coupon bonds do not see any interest payments made to the bondholder. Instead, the bondholder receives the face value of the bond at maturity, gaining on the difference between what they originally paid for the bond and the amount received at maturity. sbo/boc/cj/mfp/pdh GDF SUEZ |
Posted at 05/12/2013 19:22 by waldron PARIS--A partnership including Brazilian oil company Petroleo Brasileiro SA (PBR), French energy utility GDF Suez SA (GSZ.FR) and Brazilian investors won the rights to seek oil and gas in six areas in Brazil. Petrobras, which will hold 40% in the joint venture, will operate the exploration efforts, GDF Suez said in a statement Thursday. GDF Suez will hold 25%. The companies are committed to invest in the areas for at least three years. The concession contracts will be signed in the first half of 2014. Write to Inti Landauro at inti.landauro@wsj.co |
Posted at 12/8/2013 14:15 by waldron GDF Suez Downgraded by Societe Generale to Hold (GDFZY)Posted by JAGS Staff on Aug 12th, 2013 // No Comments GDF Suez (NASDAQ:GDFZY) was downgraded by equities researchers at Societe Generale from a "buy" rating to a "hold" rating in a research report issued on Monday, Analyst Ratings Network.com reports. Separately, analysts at Deutsche Bank upgraded shares of GDF Suez from a "hold" rating to a "buy" rating in a research note to investors on Wednesday, August 7th. Four investment analysts have rated the stock with a hold rating and two have given a buy rating to the company. The stock presently has an average rating of "Hold". Shares of GDF Suez (NASDAQ:GDFZY) opened at 22.95 on Monday. GDF Suez has a 52 week low of $18.34 and a 52 week high of $26.51. The stock's 50-day moving average is currently $20.70. The company has a market cap of $53.746 billion and a P/E ratio of 44.39. |
Posted at 29/1/2013 11:26 by waldron European Utilities Full-Year 2012 Earnings Mostly Seen Lower PrintAlert Enel (BIT:ENEL) Intraday Stock Chart Today : Tuesday 29 January 2013 By Ilan Brat Full-year earnings for European utilities are expected to be mostly lower, with power plant outages and economic weakness in Europe dragging on power-production earnings. Operations in other markets could be a bright spot for some firms. The focus will continue to be on efforts to strengthen balance sheets by selling assets and reducing capital expenditure. Enel SpA (ENEL.MI)-Feb. 5, timing unknown Enel's 2012 earnings before interest, tax, depreciation and amortization, or Ebitda, is expected to fall about 5.1% because of the recessionary drop in electricity and natural gas demand in Italy. The company's net debt is predicted to fall 6.4%, compared with the end of September. Investors will be watching for details of capital expenditure reductions and the renegotiation of natural gas supply contracts. Iberdrola SA (IBE.MC)-Feb. 14, pre-market Economic weakness in its home market will weigh on the Spanish utility's full-year figures, as power production continues to drop. Renewable energy will be a bright spot, as well as operations in emerging markets. Investors will be listening for comments on the impact of new energy taxes and the company's divestment program, which is a key sign of Iberdrola's ability to reduce debt. Electricité de France SA (EDF.FR)-Feb. 14, after market close EDF is expected to see its net profit for 2012 increase by around 50%, thanks to delayed compensation from the French government for costs previously incurred in a renewable energy subsidy scheme. Power output is expected to be a little below that of 2011, due to several planned nuclear reactor outages. Investors will be looking for a medium-term outlook and financing details of nuclear projects in the U.K. Centrica PLC (CNA.LN)-Feb. 27, at 0700 GMT Full-year revenue is expected to be up around 5% and Ebitda up 10%, with analysts citing growth in power and gas production, and Centrica's North American business as key drivers. Investors will be looking out for whether Centrica will invest a possible 800 million pounds of excess free cash flow on growth in the U.S., or return it to shareholders. A final decision on whether to invest in new U.K. nuclear power plants in early 2013 will be on the agenda. CEZ AS (BAACEZ.PR)-Feb. 28, at 0700 GMT The Czech utility may struggle to fulfill fiscal-year 2012 guidance due to higher annual financial expenses, a downward revaluation of shares it holds in Hungary's MOL Nyrt (MOL.BU), losses at its troubled Albanian unit and the decline in sale prices for electricity. The outlook for 2013 will be key, with analysts expecting flat earnings and warning of a potential write-down of billions of koruna (CZK1 billion = $52.6 million) on Albanian distribution assets. The company could benefit from the end of a temporary Czech tax on carbon emission allowances or the sale of its loss-making Albanian unit. GDF Suez SA (GSZ.FR)-Feb. 28, before market open Full-year net profit is seen down around 15% on lower output following nuclear outages in Belgium, a profit shortfall due to a regulated-tariff cap in France, and higher corporate taxes also in France. Investors will be looking for details of potential asset sales, on top of the EUR5 billion of divestments already agreed, and whether the company will bid for some of Spanish company Repsol's liquefied natural gas assets. RWE (RWE.XE)-Mar. 5, pre-market Full-year operating profit and Ebitda are expected to grow, thanks in large part to the company's fleet of coal and lignite power plants, which are benefiting from relatively low fuel and carbon costs. Investors' focus is expected to remain firmly on RWE's effort to conserve cash and reduce debt, as its asset-sale program significantly lags its EUR7 billion target for the end of 2013. This may force RWE to reduce capital expenditure or close loss-making power plants to cut debt. (Geraldine Amiel in Paris, Liam Moloney in Rome, Cassie Werber in London, Sean Carney in Prague and Jan Hromadko in Frankfurt contributed to the story.) -Write to Ilan Brat at ilan.brat@wsj.com Subscribe to WSJ: |
Posted at 08/12/2012 20:01 by waldron By GERALDINE AMIEL PARIS-French utility GDF Suez GSZ.FR -0.49%was battered by investors Thursday after it said its financial results will be dragged down by the weak European economy and tight restrictions on its ability to raise natural-gas prices in its home market. GDF Suez is the second French utility in less than a week to experience a sharp selloff due to problems stemming from regulated energy prices in France. Investors in Électricité de France SA took fright last week after a court ruling opened the possibility that the company might need to hand back billions of euros to customers who were overcharged between 2009 and 2012 because regulated electricity prices were calculated incorrectly. Heard on the Street GDF Suez Suffers European Power Loss .The two selloffs underscore how shareholders have become particularly wary of the risk posed by price regulations in France. The government has sought to alleviate the economic crisis's impact on households' spending power by increasing regulated tariffs more slowly than energy companies' wholesale gas and electricity costs have risen. Enlarge Image CloseAgence France-Presse/Getty Images Utility investors have become wary of French price regulations. Above, GDF Suez CEO Gérard Mestrallet on Thursday. .GDF Suez shares fell as much as 15% Thursday after the company said it expects 2012 earnings before interest, tax, depreciation and amortization to be about 185 million ($241.7 million) lower than expected, with 165 million of that decline coming in the fourth quarter alone. The stock ended the day down 11% at 15.29. The group also warned that earnings would fall in 2013 and stabilize in 2014-a worse forecast than most analysts were expecting-and then bounce back in 2015. Weaker energy demand, power-production overcapacity and increased competition stemming from the region's crisis have also bruised many utilities in Europe. On top of the problems with regulated gas tariffs in France, higher taxes on nuclear operations in Belgium have worsened GDF Suez's difficulties, said Chairman and Chief Executive Gérard Mestrallet. In this difficult environment, "we're totally convinced we're right to accelerate our transformation," Mr. Mestrallet said. Yet, this will still take time while the near-term outlook is getting cloudier, he said. Like some other European utilities, such as Germany's E.ON AG, EOAN.XE -0.61%GDF Suez has been seeking growth outside the region in energy-hungry emerging markets. However, company executives, who were presenting their new strategy in Paris, failed to convince analysts and investors that they could effectively disentangle themselves from their woes in European markets in this way. GDF Suez's investors remain skeptical that emerging markets could help offset the poor performance in Europe. In particular, some of the most promising markets the company is betting on, such as Brazil and China, have recently shown signs of slowing growth. The company also wants to refocus on more-profitable activities, such as energy production, and turn away from the long-promoted model of a one-stop-shop utility, also selling water and waste services. Late Wednesday, the company announced it will loosen the ties to its water business, Suez Environnement SA, SEV.FR -0.37%as it focuses more of its financial firepower on its energy business. The company also plans to divest or deconsolidate as much as 11 billion worth of assets in the coming two years, Mr. Mestrallet said. .Analysts said the outlook for GDF Suez has turned out to be worse than their already muted expectations. Morgan Stanley analyst Emmanuel Turpin said he had already factored in the effect on earnings of a tough operating environment in Europe and the potential for a cost-cutting plan. "In the end, we did get both, but the net effect of the two is materially worse than we and the market anticipated," he said. Bank of America-Merrill Lynch analyst Arnaud Joan downgraded GDF Suez's rating to neutral from buy but welcomed "efforts to preserve balance sheet strength, via [asset] disposals, improve efficiency and grow in emerging markets." "The near-term capital expenditure reductions and the cost control on the longer term should allow the [GDF Suez current] dividend to remain covered by cash flow," said Goldman Sachs analyst Andrew Mead. Write to Geraldine Amiel at geraldine.amiel@dowj |
Posted at 09/11/2012 09:40 by waldron AlphaValue Reaffirms Buy Rating on GDF Suez SA (GSZ) November 8th, 2012 - 0 comments - Filed Under - by Latisha Jones Filed Under: Analyst Articles - Europe - Stock Market GDF Suez SA (EPA: GSZ)'s stock had its "buy" rating reiterated by investment analysts at AlphaValue in a note issued to investors on Thursday. They currently have a $17.95 (14) target price on the stock. GDF Suez SA traded down 2.02% on Thursday, hitting 16.725. GDF Suez SA has a 52-week low of 15.615 and a 52-week high of 21.85. The company has a market cap of 37.130 billion and a price-to-earnings ratio of 10.49. A number of other firms have also recently commented on GSZ. Analysts at Barclays Capital reiterated an "equalweight" rating on shares of GDF Suez SA in a research note to investors on Thursday, November 1st. They now have a $24.68 price target on the stock. Separately, analysts at Grupo Santander reiterated an "underweight" rating on shares of GDF Suez SA in a research note to investors on Monday, October 29th. They now have a $26.04 price target on the stock. Finally, analysts at CIC Securities reiterated a "hold" rating on shares of GDF Suez SA in a research note to investors on Thursday, October 25th. They now have a $11.69 price target on the stock. GDF Suez SA is a France-based natural gas and electricity supplier. Its operations are organized in following business lines: Energy Europe, engaged in the production of electricity and distribution and supplying of gas through divisions in Benelux and Germany, the rest of European countries; Energy International which supplies North and Latin America, Middle East, Asia and Africa; Global Gas & LNG, which includes exploration and production of gas and oil, procurement and routing of gas and Liquefied Natural Gas (LNG) and supplying accounts in Europe; Infrastructures, which operates the transport, supply and storage of natural gas and regasification terminals; Energy Services, providing multi-technical services in the areas of engineering, installation or energy services; and Environment, specialized in services of water, sanitation and waste management. |
Posted at 16/10/2012 18:53 by waldron Credit Suisse Gives outperform Rating to GDF Suez SA (GSZ) October 16th, 2012 - 0 comments - Filed Under - by Latisha Jones Filed Under: Analyst Articles - Europe - Stock Market GDF Suez SA (EPA: GSZ)'s stock had its "outperform" rating restated by analysts at Credit Suisse in a research report issued to clients and investors on Tuesday. They currently have a $14.94 (12) price target on the stock. A number of other firms have also recently commented on GSZ. Analysts at Macquarie reiterated an "outperform" rating on shares of GDF Suez SA in a research note to investors on Monday, October 8th. They now have a $29.22 price target on the stock. Separately, analysts at Nomura reiterated a "neutral" rating on shares of GDF Suez SA in a research note to investors on Thursday, October 4th. They now have a $15.90 price target on the stock. Finally, analysts at AlphaValue upgraded shares of GDF Suez SA to a "buy" rating in a research note to investors on Tuesday, October 2nd. They now have a $30.00 price target on the stock. GDF Suez SA traded up 1.66% on Tuesday, hitting 17.76. GDF Suez SA has a 1-year low of 15.615 and a 1-year high of 22.50. The company has a market cap of 39.427 billion and a price-to-earnings ratio of 10.95. GDF Suez SA is a France-based natural gas and electricity supplier. Its operations are organized in following business lines: Energy Europe, engaged in the production of electricity and distribution and supplying of gas through divisions in Benelux and Germany, the rest of European countries; Energy International which supplies North and Latin America, Middle East, Asia and Africa; Global Gas & LNG, which includes exploration and production of gas and oil, procurement and routing of gas and Liquefied Natural Gas (LNG) and supplying accounts in Europe; Infrastructures, which operates the transport, supply and storage of natural gas and regasification terminals; Energy Services, providing multi-technical services in the areas of engineering, installation or energy services; and Environment, specialized in services of water, sanitation and waste management. Keep up with the latest analysts' ratings by subscribing to Daily Political's daily email update. With your complimentary subscription, you will receive a concise summary of stock analysts' upgrades, downgrades and new coverage |
Posted at 03/10/2012 07:46 by grupo guitarlumber UPDATE: Eight Companies Selling $9 Billion Worth of Bonds Share this article PrintAlert Heineken N.v. (PC) (USOTC:HINKY) Intraday Stock Chart Today : Wednesday 3 October 2012 (Updates with new daily tally in third paragraph, final pricing on Heineken bonds in fifth paragraph, investor comment in sixth paragraph, and refreshed throughout.) By Patrick McGee Companies are piling into the U.S. debt markets ahead of earnings-related blackout periods beginning next week. Blackout periods are the time just ahead of earnings releases, when companies cannot sell debt. At least eight borrowers are floating a combined $9.25 billion in new deals Tuesday, led by jumbo-sized deals from Dutch brewer Heineken NV (HINKY), Toyota Motor Credit Corp., Banco do Brasil SA (BDORY, BBAS3.BR), and French electric utility provider GDF Suez SA (GSZ.FR). The eight deals follow a record-setting September and third quarter for high-grade volume, according to data provider Dealogic. Companies are enticed by ultralow yields--which hit another four-decade low Monday at 2.78%, according to a Barclays index--and seemingly insatiable demand. Heineken exploited investors' appetite with a $3.25 billion four-pack featuring three-, five-, 10- and 30-year maturities. They were priced to yield 0.859%, 1.469%, 2.771%, and 4.102%, respectively, or 0.55, 0.85, 1.15, and 1.30 percentage points over comparable Treasurys, reflecting the narrow end of earlier pricing guidance. The deal is rated Baa1 by Moody's Investors Service and BBB-plus by Standard & Poor's Ratings Services. "Investors are scrambling for whatever they can get," said John D. Ryan, director and portfolio manager at DWS Investments. Mr. Ryan said he hasn't been buying much in the primary market, because yields are low, but investors who are underexposed to corporate bonds continue to find reason to bulk up. On Monday, eager investors enabled General Electric Co. (GE) to price a $7 billion issue, the third-largest sale this year. GE spreads--the extra yield offered compared with U.S. Treasurys--have tightened in Tuesday trading, indicating investors remain in "buy" mode despite lower and lower yields. GE's 10-year bond spread fell 0.09 percentage point to 0.91, according to MarketAxess, while spreads on the three-year and 30-year tranches narrowed by 0.12 and 0.09 point, respectively. All three GE bonds are by far the most actively traded issues in Tuesday's market. Other recent issues are improving too: The five-year, 2% coupon bond from NYSE Euronext (NYX) is trading at a spread of 1.28 percentage points, or 0.17 point tighter than when issued Monday. Markit's CDX North America Investment-Grade index, a proxy for investor confidence, improved 0.6% in Tuesday afternoon trading. When recent deals perform well, it helps persuade buyers to continue playing in the primary market, helping make an attractive climate for others' issuance. The Banco do Brasil deal comprises $1.75 billion worth of 10-year bonds at a yield of 4%. That is down from earlier pricing guidance of 4.125%, also reflecting strong demand. The deal carries a provisional Baa1 rating from Moody's. Toyota sold a $1.5 billion issue of 2017 notes yielding 1.262%, or 0.65 percentage points over Treasurys. That represents its lowest yield ever on five-year debt, according to S&P's Leveraged Commentary Data service. GDP Suez sold $1.5 billion worth of bonds, in five- and 10-year maturities. They were priced at yields of 1.761% and 3.015%, respectively, or 1.15 and 1.40 percentage points over Treasurys. That reflects a 0.10-percentage-poin Smaller issues include an $800 million issue from Realty Income (O), a $300 million offering from Bermudian reinsurer Montpelier Re Holdings (MRH) and a $100 million deal from Northern States Power. Also in the primary market, GE Capital, the financing arm of GE, plans to sell $250 million of preferred shares. They have a 40-year maturity date but can be redeemed by GE after five years. -Write to Patrick McGee at patrick.mcgee@dowjon Subscribe to WSJ: |
Posted at 01/8/2012 20:07 by ariane source: seekingalpha.comGDF Suez: A European Giant Continues To Turn Outward August 1, 2012 by: Morningstar | about: GDFZY.PK, includes: EONGY.PK By Mark Barnett After completing its full acquisition of International Power in June, GDF Suez (GDFZY.PK) now owns the largest independent power generation portfolio in the world with 117 gross gigawatts of capacity. With a mix of long-term contracted and open generation, GDF enjoys cash flow stability, significant upside to higher power prices, and growing power usage in its major markets. The IPR deal augments its expansion into fast-growing markets outside of Europe and supports our belief that GDF's combination of operational resilience, financial strength, asset quality, and growth opportunities makes it more attractive than peers Enel, E.ON (EONGY.PK), Iberdrola, and RWE, which have similar or greater levels of eurozone exposure. Most diversified European utilities invested abroad during the last decade, but GDF's position outside of Europe and North America is, in our view, the most robust. The diversified space is a frothy one, as Europe's utility giants frequently trade assets, move in and out of countries, and create complex holding structures, earning themselves healthy conglomerate discounts. GDF has swapped its share of assets, but the merger with Suez in 2008 set a decisive course toward expanding power generation development outside of core European markets. The subsequent IPR acquisition has amplified this move, adding significant capacity in Asia and the Middle East and boosting the growth pipeline in Latin America. On a gross basis, 53% of the company's 117 GW fleet is located outside of Europe. Prior to closing the acquisition of the final 30% of IPR, GDF generated nearly 40% of its power output outside of Europe and North America, including 15% from Latin America; these figures will continue to rise with full integration and as projects totaling roughly 12.5 GW are completed. GDF generated 23% of earnings before interest, taxes, depreciation, and amortization (EBITDA) from power generation outside of Europe and North America in 2011, a figure that also will increase. Compare this with Iberdrola, which generates 30% of its output outside of Europe and North America (nearly all in Latin America); or Electricite de France, E.On, and RWE, which generate nearly all output within Europe. GDF's international breadth -- from the United States to Brazil to Poland to the Middle East to China -- is unmatched. A Worldly Sense of Well-Being GDF's exposure to markets outside of Europe is crucial to its future growth and profitability. Higher taxes, renewable subsidies, environmental concerns, and regulated tariff changes are pressuring European utilities' earnings. In many ways, the perception of country risk is being turned on its head. While emerging markets have continued to honor contracts, support growth, and welcome large companies with the expertise required to modernize their infrastructure, Europe's policymakers have moved in the opposite direction. The largest emphasis on growth has come from renewables, which remain a relatively inefficient and high-cost generation source. Otherwise, taxes on energy companies (and industry in general) have risen and electricity market policy generally has been inconsistent and at times incomprehensible (read: Belgian and German plans to shutter all nuclear plants). Regulators have clamped down on utility profits, even at the consistent gas and power delivery cash cows that fed European utilities' investments abroad. GDF is no exception to the bruising being delivered in Europe. In France, its gas distribution business has suffered tariff freezes, lower allowed returns, and increased taxes. The French courts ultimately have overruled the government's efforts to conceal the real cost of natural gas from voters, but persistent efforts from the nominally conservative Nicolas Sarkozy government and now Francois Hollande's new Socialist administration point to continuing trouble. In Belgium, the new government has committed to closing its three nuclear reactors at Doel (by 2016) and Tihange (by 2025), planning to fill the hole in baseload capacity with volatile gas and a pie-in-the-sky projection of new renewable generation. These nukes have been pillars of GDF's profits in Europe (despite increasing nuclear levies), generating EUR 650 million of EBITDA in 2007 by the company's estimate. That figure is lower today because of increasing levies but still would represent only 3% of our 2015 EBITDA forecast. We believe there will be further developments here, as new generation investments in other technologies are difficult to justify based on regional power prices. This brings us to another fundamental weakness for European utilities -- pricing and demand. Heavy investment in renewables along with low dispatch costs, tepid demand, and state market intervention are weighing on spreads for almost all forms of generation, with the interesting exception of coal plants that are benefiting from relatively high local gas prices. As it's impossible to build new coal plants in most of the core eurozone, and with nuclear on its way out, gas and renewables are the only game in town. Gas generation's spreads, however, are razor thin almost everywhere and have gone negative in parts of Germany, for example. We see no economic incentive for developers to pursue new capacity in the current environment. Governments have axed renewable subsidies, even though they remain generous, and GDF's European renewables development effort is a small part of the overall business. The company is shutting down and selling its least competitive European capacity to focus its cash outside of Europe. While its peers are quick to tout their plans for diversification outside of Europe, GDF already has achieved it in a big way. What Else Will the IPR Transaction Accomplish? Following the acquisition, GDF management is targeting EUR 197 million-EUR 225 million of synergies from within International Power and an additional EUR 17 million at GDF Suez. Our forecasts remain in line with this guidance, but there could be upside. Realized synergies from its initial 70% acquisition began at EUR 90 million, but resulted in more than EUR 135 million and came in ahead of schedule. We further expect GDF to begin buying out selective minority holders in IPR immediately, which will cost up front but could add additional synergies over time, especially on taxation and dividends to the parent. Expansion in Asia, Latin America, and the Middle East should help drive future business and strengthen relationships with key decision-makers in government, a crucial ingredient to winning development bids. We do believe strategic minorities will remain, as government partners and powerful regional companies are frequently valuable allies and a foot in the door to new business elsewhere in a given region. In our view, it is too early to speculate (as some have) that competition in China and India will quickly crowd out premium returns on such projects. Most BRIC (Brazil, Russia, India, and China) power developers lack the expertise to pursue projects like these on their own. China's developers, who would have access to the greatest financing firepower, are still tainted by other Chinese industrial companies' frightful record of shoddy construction and operations. Over time, we expect this gap will close and partnerships with GDF and its peers likely will help accelerate development. GDF's Shares Look Cheap, and Its Yield Is Hard to Match GDF has taken a pounding along with the rest of the European utility landscape, as eurozone shakiness, tepid European economic data, and regulatory and political challenges have frightened investors out of the sector. But we see opportunity for investors to buy these businesses at significant discounts to fair values and consider GDF a top option for investors seeking yield and long-term growth. However, as we've discussed, there are significant risks. Commodity exposure, political intervention, regulatory setbacks, and the difficulty of parsing complex holding structures and accounting statements are major concerns. Trading at just 10.6 times our 2012 earnings estimate and 8.8 times our 2014 earnings estimate, GDF's shares look appealing. However, given the relatively large contribution to cash flows of volatile and commodity-linked businesses, we prefer to also look at diversified utilities on an enterprise value/EBITDA basis. GDF trades at just 5.7 times our 2012 EBITDA estimate and just 5.2 times our 2014 EBITDA estimate. While we acknowledge the hair on this one, we think it's too attractive an entry point to ignore given the quality of the underlying businesses, the strength of GDF's balance sheet, and the significant upside to global growth and power markets. Income-oriented investors often look to the dividend yield as both a significant component of total return and a barometer of expectations for a dividend cut in the future. With its shares yielding nearly 8.3%, GDF should both tempt potential investors and worry current and potential shareholders. We've seen this one before, right? Enel, E.ON, and RWE all saw dividend yields reach similar heights before financial troubles and significant future cash flow reduction led to big cuts in the dividend. Could GDF be at similar risk of a dividend cut? We don't believe so. GDF's dividend is strongly supported by its regulated operations in France and its services segments with long-term contracted cash flows. We forecast GDF will pay out roughly EUR 10.3 billion in dividends in 2013-15 and generate about EUR 12.8 billion of EBITDA from those two business segments alone. On a consolidated basis, we expect free cash flow to the firm net of maintenance and growth capital expenditures to total EUR 12.4 billion during that same time period. In our view, cutting the dividend would not be a matter of necessity but of choice. On that track, the French government relies on GDF for a significant chunk of revenue from dividends -- more than EUR 1 billion annually. This combination of factors gives us confidence that GDF's dividend is safe and that the yield reflects our view that the shares are highly undervalued |
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