July 5 (Reuters) - Spanish power and gas company Gas Natural’s approach to buy Portuguese rival EDP could fire the starting gun for a new wave of cross-border dealmaking and trigger the biggest upheaval in the utilities sector for years.
Supplies of ever-cheaper wind and solar power are surging in Europe, forcing down wholesale electricity prices and posing a threat to the traditional model of centralised power generation and distribution from large coal, gas and nuclear plants.
Following is a selection of Europe’s top utilities and analyst views on them:
ENGIE Base: France Market Capitalisation: 33 billion euros ($37 billion) Stock: +9.7 percent YTD; -20.1 percent in last 2 years Analyst View:
(+) The French natural gas and electricity supplier has made progress on its transformation plan and could do further by disposing its exploration and production division, J.P. Morgan analyst Vincent Ayral said in a note in March.
(-) Ayral sees the remaining disposals as dilutive to earnings, but believes that should be more than offset by restructuring gains and organic growth.
E.ON Base: Germany Market Capitalisation: 18 billion euros ($21 billion) Stock: +23.1 percent YTD; -22.4 percent in last 2 years Analyst View: (+) According to Bernstein analysts, E.ON’s key strengths are: a strong Northern European grids business, significant renewables presence in the United States, execution of its wind projects and a strong energy retail business in the challenging UK market. (-) Some investors dislike the residual nuclear business, although Bernstein sees scope for E.ON to outperform the provisions set against decommissioning activities.
INNOGY (spun-off from RWE) Base: Germany Market Capitalisation: 19 billion euros ($22 billion) Stock: +5 pct percent YTD; -3.8 pct since IPO in Oct. 2016 Analyst View: (+) Innogy is similar to E.ON in terms of its grid performance with a 97 percent efficiency factor in Germany, which is above the industry average, Bernstein said. Innogy’s balance-sheet is also well funded. (-) Bernstein said Innogy’s energy retail business in the UK scored poorly on customer satisfaction metrics and had suffered billing problems during a migration from one system to another.
ENEL Base: Italy Market Capitalisation: 48 billion euros ($55 billion) Stock: +11.9 percent YTD; +13.4 percent in last 2 years Analyst View:
(+) In a note dated April 24, Credit Suisse highlighted Enel’s “superior growth rates, track record and restructuring”.
(-) Deutsche Bank, in a note from May 22, called it a “complex group” and added the volatility of its earnings could be higher than for some comparable firms.
IBERDROLA Base: Spain Market Capitalisation: 43 billion euros ($49 billion) Stock: +12.4 percent YTD; +20.6 percent in last 2 years Analyst View:
(+) BPI analysts said in June that with plans to add 26 gigawatts (GW) of offshore wind capacity worldwide through 2020, Iberdrola was becoming a benchmark in the market.
It has a number of large-scale projects and a strong pipeline in Germany, the United Kingdom, United States and France.
(-) Independent Research said in a note dated April 27 that the company still had relatively high debt and faced risks in Brazil, Mexico, Spain and the United Kingdom. ENDESA Base: Spain Market Capitalisation: 21 billion euros ($24 billion) Stock: +0.6 percent YTD; +18.6 percent in last 2 years Analyst View:
(+) In a note dated April 24, Credit Suisse highlighted Endesa’s cost cutting measures and said it was “ahead of peers in providing visibility on the impact of value-added services and digitalization”.
(-) The company is seen by the market as having a sub-optimal financial structure, according Haitong Research analysts.
GAS NATURAL FENOSA Base: Spain Market Capitalisation: 20 billion euros ($23 billion) Stock: +13.9 percent YTD; +2.7 percent in last 2 years Analyst View:
(+) According to BPI’s note dated April 28, strong cashflow generation leaves room for increased investments by the Spanish gas utilities company.
(-) In the note dated June 13, Citi said that despite potential restructuring, Gas Natural group earnings would remain exposed to gas supply margin uncertainty, Latin American currencies and earnings visibility below that of peers.
$1 = 0.8835 euros Compiled by Piotr Lipinski, Joao Manuel Vicente Mauricio, Pawel Goraj, Marta Frackowiak, Alan Charlish, Sylwia Lasek; Editing by Mark Potter