“Political risk, at least in northern Europe, has peaked,” analysts including Lueder Schumacher and Javier Suarez wrote in a note to investors today. “As balance sheet capacity is being exhausted, politicians will be forced to look elsewhere for revenues, tempting as extra taxes on the sector may be.”
European government intervention has cut 200 billion euros ($273 billion) from utility shares since January 2009, according to Citigroup Inc. It’s no coincidence that RWE and EON, Germany’s two largest utilities, and France’s Veolia SA have seen the biggest adjustments to dividend expectations and are the worst-performing stocks in the industry, UniCredit said.
Fortum OYJ (FUM1V), GDF Suez (GSZ) SA and International Power Plc (IPR) are UniCredit’s top picks even against a background of falling power prices, the analysts said. EON and RWE have “little upside” under UniCredit’s base scenario, though offer “geared exposure” if a solution to the crisis is found.
German power prices for next year may fall toward 52.80 euros a megawatt-hour, about four euros below current levels, according to UniCredit. That would push so-called clean dark spreads, a measure of coal-fed power station profitability, to zero, the report said.
Baseload power for 2012 has fallen 2.2 percent this month to 57.50 euros a megawatt-hour, broker data on Bloomberg shows.
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