Please find below our latest publication:
E.ON (Buy, TP=€36.8) - Quarterly results - Better-than-expected results against a still difficult backdrop (3p)
The group reported Q3 adjusted EBIT of €1,959m, up 1% (vs €1,920m for the Inquiry Financial consensus and €1,848m for our estimate). We believe that this is an excellent performance against a deteriorated economic backdrop (and lower volumes), which notably reflects the company's ability to cut costs. Moreover, E.ON discussed at length certain aspects of its gas contracts and stated that it expects a pick up in gas volumes for 2011e.
For now, we maintain our estimates which, although prudent on Q3, discount a rebound in Q4, notably thanks to access to the Russian gas field Yussno Rhuskoye (management specified that this was effective from October 2009), which in our opinion will allow E.ON to reduce its gas supply costs. We note that E.ON is the second-largest “beneficiary” of take-or-pay contracts in Europe (behind ENI – see our preview). E.ON indicated it had sold its network for €0.9bn but that this disposal (as well as that of Tüega) would reduce debt only in 2010.
Target price & rating
We maintain our Buy rating on the share. The positive momentum from 2008 results (in March 2009) appears intact: debt reduction and restructuring are under way, and the company's repositioning on the gas value chain is partially complete (giving it more consistent upstream access). The company should soon present new 2012 guidance, potentially reducing capex and boosting its cost-cutting plan (March 2010? at the 2009 full year earnings publication). We maintain a target price of €36.8, as established in our note published on 17 September.
Next events & catalysts
The finalisation of the agreement between electricity producers and the government coalition should prompt a rally of about 5% (prices rose after the German general elections). Management may update guidance as of March 2010, which could take into account reduced capex and stronger cost-cutting. Further disposals (North American assets) are expected to complete the €10bn asset sale programme.