Fortum Gains Most in Almost Four Years on Power Hedges, Dividend

Fortum Oyj, Finland’s biggest utility, jumped the most in almost four years as its power-price hedges paid off and an increase in fourth-quarter profit meant an unchanged payout to shareholders.

Fortum shares added as much as 7.8 percent to 14.50 euros, the most since May 2009, and gained 5.1 percent as of 12:24 p.m. in Helsinki. Trading volume was more than double the stock’s three-month average.

The company’s power production unit achieved an average Nordic sales price of 44.6 euros ($60.5) a megawatt-hour last year, compared with the Nordic average of 31.20 euros a megawatt-hour.

“This showed that our hedging of power sales really paid off,” Tapio Kuula, chief executive officer, said on a conference call today.

For this year, Fortum has hedged 70 percent of electricity sales at 45 euros a megawatt-hour and 35 percent of 2014 power sales at 43 euros a megawatt-hour. That “looks better than expected,” Goldman Sachs analysts including Deborah Wilkens wrote in a note to clients today. The hedging development was “impressive,” SEB analysts wrote in a note today.

Fortum’s proposal to keep its dividend unchanged at 1 euro a share for the fifth year “signals management’s confidence in future earnings outlook,” Goldman said.

Fourth-quarter sales rose 10 percent to 1.83 billion euros, the Espoo-based company said in a statement today. The mean estimate was for sales of 1.72 billion euros, according to 15 analyst estimates compiled by Bloomberg.

‘Demanding Environment’

“Fortum’s year in 2012 was good, considering the very demanding business environment,” including economic uncertainty in Europe and globally, and a slump in average Nordic wholesale electricity prices to a five-year low, Kuula said in a statement.

Fortum is cutting costs to improve cash flow by more than 1 billion euros, it said in October. The efficiency program is “on track,” and includes cutting capital expenditure by 250 million euros to 350 million euros, divesting about 500 million euros’ worth of non-core assets and reducing fixed costs.

Fortum may sell its electricity distribution business, the company said today.

“We will likely limit the sale to Finnish buyers,” Kuula said on the call. “Divestment is one option, we don’t rule out others. It depends on what kinds of bids we get. It may be that we keep partial ownership. Hopefully we can tell you more in one year.”

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