ROUNDUP 2: Eon earns less due to high electricity prices – stock moves strongly

(Course section updated, analysts’ opinions, statement by Union Investment on the upcoming Annual General Meeting)

ESSEN (dpa-AFX) – The energy group Eon (EON SE) started the new year with a decline in earnings. Although the German network business was able to grow in the first quarter, this was more than offset by negative effects in other countries. Among other things, there were burdens from higher procurement costs, which can only be passed on to customers at a later date, as the group announced on Wednesday in Essen. The Executive Board confirmed its annual targets for 2022. CFO Marc Spieker said: “Despite the challenges in the first quarter, we are on course.”

The Eon share fluctuated considerably: First in the morning it temporarily slipped to its lowest level since March 2021. In the meantime it was almost four and a half percent in the red and expanded its negative price balance to almost 23 percent in 2022. Most recently, however, it turned positive and was listed 0.8 percent higher at EUR 9.93. Since the beginning of the year there is still a discount of 18.5 percent, with which the network operator performs worse than the Dax (DAX 40), which has lost around 14 percent over the period. The first quarter was weak, according to analyst John Musk from the Canadian bank RBC.

In the first three months, the high electricity prices in particular had a major impact on Eon’s business. Therefore, sales rose by 60 percent to 29.5 billion euros despite declining volumes. The customer solutions segment, in particular, grew strongly and once again contributed the lion’s share to sales. In this business area, the Essen-based company provides the supply of energy and energy concepts for cities and industry. Sales tailwind also came from the central procurement unit Energy Markets. In the unit founded in October 2020, Eon bundles the energy procurement of the former Eon and Innogy businesses. At the same time, however, the high energy prices in the first quarter put pressure on the profit margin.

Adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) therefore fell by a good 14 percent to just under 2.1 billion euros. The result of the customer solutions segment collapsed by almost half, mainly due to higher procurement costs in view of the high electricity prices. According to Eon, these negative effects could only be passed on to customers after the first quarter. Synergy effects, operational improvements and positive weather effects could only partially compensate for this in the home market of Germany. And in other countries, too, high procurement costs weighed on earnings.

The Energy Networks segment made the largest contribution to earnings, almost at the same level as the previous year. While business in Germany increased, among other things due to catching up on negative earnings effects from previous years, there were negative volume effects in other countries. Above all, higher costs due to grid losses and storm damage weighed on the result.

The loads caused by so-called grid losses occur because a grid operator is obliged to supply his energy grids with a certain basic voltage. Electricity is also purchased on the market for this purpose. This is currently very expensive, which is having a negative impact on the results at Eon. However, due to regulatory requirements, the Group can later pass these expenses on to its customers and thus offset them again in subsequent quarters.

Eon’s presentation of figures took place a day before the annual general meeting on Thursday. With regard to this, Thomas Deser, portfolio manager at Union Investment, expressed his concerns about the prospect of falling returns. As before, there is no discernible earnings dynamic from the focus on the network business, he said in the published statement. “On the contrary: the regulated network activities seem to be indolence itself.” The energy networks segment is strictly regulated. This includes, for example, the expansion, maintenance and repair of electricity and gas networks.

The bottom line was that Eon had an adjusted net profit of 679 million euros in the first quarter, 16 percent less than a year earlier. At the end of the year, consolidated profit is expected to rise to between 2.3 and 2.5 billion euros. Adjusted operating profit is expected to reach 7.6 billion to 7.8 billion euros. According to RBC analyst Musk, the confirmed forecast indicates that the consequences are limited. His colleagues at the investment bank Goldman Sachs, however, noted that the annual forecast is challenging given the quarterly figures.

In addition, Eon wants to invest 5.3 billion euros in the current year. In the first quarter, the focus here was primarily on new connections for alternative energy systems, commercial and industrial customers and the modernization of the network infrastructure./lew/mis/nas/stk