EDF shares drop on falling demand and nuclear outages
Shares in French energy company EDF dropped more than 10 per cent on Monday after it cut its profit and cash flow targets because of falling demand and delays in restarting some of its nuclear reactors.
The state-backed company said earnings before interest, tax, depreciation and amortisation for 2018 were now expected to be between €14.6bn and €15.3bn, compared with its earlier assumption of at least €15.2bn.
It also said it was less confident about achieving positive cash flow, saying it will be “slightly positive or close to balance”. It had previously said it would return to positive cash flow, after dividend payments, in 2018.
EDF, which is in charge of the controversial new nuclear power development at Hinkley Point in the UK, blamed lower electricity consumption in France, lower availability of some of its nuclear reactors in France and the risk that it might sell less energy in the UK and at a lower price.
“Basically, this is the market taking into account the series of bad news that has been coming,” said one sector specialist. “It’s Hinkley Point, it’s the number of plants that have had to be stopped due to the regulator and fundamentally a Nicolas Hulot climate that is not very positive.” Mr Hulot is a climate campaigner and strident critic of nuclear power who is now France’s energy minister.
“With consensus at €15.5bn, market expectations have been lowered €500m at the operating level. This should lead to consensus coming down close to €300m at the bottom line or close to 15 per cent,” said Olly Jeffery, an analyst at RBC Capital Markets.
EDF will report its third-quarter results after markets close in Paris on Tuesday.
As a result of the expected difficulties, EDF said it would accelerate a previously announced plan that aims to cut spending by an additional €100m by the end of next year.
“The bulls have been felled by this new announcement . . . Clearly EDF’s financial target for 2018 would have deteriorated even further if it wasn’t for EDF accelerating its cost-saving plan,” said Mr Jeffery.
Analysts at investment bank Jefferies said that two of the problems cited by EDF — lower payments from the UK and nuclear outages — “are transitory and should resolve over time”.
However, Morgan Stanley suggested that additional risks included “possible delays in the delivery of nuclear plants”, while Mr Jeffery said there is “a strong risk the issue caused by the nuclear regulator’s ongoing investigation into EDF’s existing nuclear plants could roll on beyond early 2018 as anticipated by EDF”.