Engie: Despite robust renewables and trading activity, Engie is hardly impressing the stock market

(BFM Bourse) – The energy group posted slightly lower results, although with good results from the Gems division (Global Energy Management & Sales). The action slows down anyway.

The market unenthusiastically welcomes the results of Engie, the last CAC 40 company to deliver a first quarter publication this season. At around 11:10 a.m., the energy group’s efforts eased without actually falling, losing 1.6%, the fourth-biggest decliner in the CAC 40.

During the first three months of the year, Engie generated revenue of 22 billion euros, down 24.9% on a comparable basis.

However, the group limited the fall in operating profit to 1.2% for a total of 4.17 billion euros. Morgan Stanley appreciates this performance and emphasizes that “the basis of comparison was difficult”.

Excluding nuclear activities, operating profit was 3.7 billion euros, down 3.7% on a comparable basis, in line with UBS bank expectations (3.73 billion euros).

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Renewable energy in good condition

This account line was particularly driven by renewable energy, whose operating profit reached 712 million euros, an increase of 4.3% like-for-like. The group mentions “very good hydrological conditions in France and Portugal in the first quarter of 2024”, and “the contribution of newly added capacities in the US, Latin America and Europe”.

The “Flex Gen” division (thermal generation, desalination of seawater, sale of electricity and gas to individuals, energy production, battery storage) saw operating profit increase by 21.3% in comparable data to 637 million euros.

Conversely, the “infrastructure” division, which includes gas distribution and transport networks, with GRDF, recorded a 14.3% decline on a comparable basis to 779 million euros due to a decrease in volumes.

“Gems” that shine…

The “Gems” division of “global energy management & sales”, which includes the trading, supply and risk management of energy assets, recorded a 9.2% decline on a like-for-like basis to 1.46 billion euros. Via this division, the company, for example, establishes long-term purchase contracts for its professional customers and/or develops cost of risk strategies for them.

Extraordinary items increased the results of this division with an effect of around 1 billion euros. Excluding these one-off items, the operating profit was 500 million euros, weighed down by the “normalization of market conditions” and the decrease in inherent volatility, which may have penalized trading activities.

However, Morgan Stanley emphasizes that this “Gemstone” division had “a very robust performance” which could lead to consensus to revise its forecasts.

Engie confirmed that it expects an underlying operating result for “Gems” of 2 billion euros this year, “which is a very strong performance in our eyes”, underlines Oddo BHF.

“The numbers are good and even stronger than expected in the Gems division, which generated 1.5 billion euros in operating profit (including 900 million euros extraordinary),” judge Pierre-Alexandre Ramondenc, analyst at independent research firm AlphaValue.

… But which are not popular

“However, the market does not really like this Gems division because it brings together very different activities, especially trading, and is therefore very difficult to model. This division does not benefit from recurring revenues, and moreover, management has clearly signaled that there will be a normalization of this activity with a target of two billion euros this year and 1.5 billion in the medium term”, he continues

“Furthermore, the fall in Engie shares may also be due to slightly tight turnover in the infrastructure division, that is, GRDF, with gas distribution. The group explains that it was punished by mild weather conditions this winter, which weighed on revenues with less gas transit and therefore commissions taken by Engie” , the analyst estimates.

“Finally, let’s remember that the renewable activity, at Engie as elsewhere, is not popular in the market, especially because of the increase in rates,” he concludes.

Regarding its outlook, Engie confirmed that for this year it expects an operating profit, excluding nuclear power, of between 7.5 billion and 8 billion euros, as well as a recurring net profit of between 4.2 billion and 4.8 billion euros.

Julien Marion – ©2024 BFM Bourse

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