PGE Sees Profit at Up to $3 Billion as Power Prices to Increase

PGE SA, Poland’s biggest utility, expects profits to climb to a record in coming years as the country’s accelerating economic growth is set to boost demand for electricity and increase power prices.

Earnings before interest, taxes, depreciation and amortization, or Ebitda will be 8 billion zloty ($2.6 billion) to 9 billion zloty a year in 2015 to 2020, according to the company’s expansion plans published late yesterday. The profit will fall 12 percent to 7.02 billion zloty in 2014, according to the mean estimate of 14 analysts in a Bloomberg survey.

“The Ebitda forecast is quite a big number, taking into account current power prices,” Flawiusz Pawluk, head of equity research at UniCredit SpA in Warsaw, said by phone. “If the profit does reach 9 billion this would be a very good result.”

Polish energy producers saw earnings worsen last year as the country’s slowing economy pushed power prices to the lowest level in at least five years in July. Forward power prices in Poland have increased 13 percent since last year’s low as the economy rebounded, according to data compiled by Bloomberg.

Best Performers

PGE fell for the first time this week, losing 1.8 percent to 20.42 zloty at 10:18 a.m. in Warsaw and valuing the utility at 38.3 billion zloty. The stock has still advanced 26 percent this year, becoming the best-performing in Warsaw’s benchmark WIG30 Index in 2014. The second- and third-best performers were PGE’s competitors, Tauron Polska Energa SA and Enea SA, whose shares have jumped 21 percent and 16 percent respectively.

Warsaw-based PGE plans to invest 50 billion zloty through 2020 as it starts its biggest project, the 1,800-megawatt coal-fired power plant in Opole. The spending was at 4.36 billion zloty last year. The company wants to invest 12.3 billion zloty in its distribution network and will spend 16.3 billion zloty to upgrade its existing generating fleet.

State-controlled PGE started construction of the 11.6 billion-zloty Opole plant in 2014, at least two years later than planned, after the government shuffled its management board. Previous Chief Executive Officer Krzysztof Kilian said last year electricity prices were too low for the investment to be profitable.

Compared with its previous strategy, PGE now plans to invest mainly in coal and lignite-fired assets, saying both fuels remain most cost-competitive sources of energy. Poland sits atop Europe’s largest coal reserves and is the European Union’s most-dependent country on the fuel, relying in 90 percent on it for electricity generation.

Dividend Plans

Polish utilities should give up “maximizing” profits and the country can’t allow power producers to post “huge profits while at the same time the mining industry is failing,” Prime Minister Donald Tusk said last week. Kompania Weglowa SA, Poland’s biggest coal produce, had a loss on coal sale of 1 billion zloty for 2013.

The investments won’t hamper dividend plans as the company will keep its current policy of paying out 40 percent to 50 percent of profit each year.

PGE cut spending on gas-fired heat and power plants and dropped plans to invest in offshore wind farms. The utility also delayed the investment in Poland’s first nuclear plant and now says the final decision whether to start the project will be made in 2017 and the construction won’t start before 2020.

First-quarter net income fell to 789 million zloty from 1.1 billion zloty a year earlier, missing the 851 million-zloty average estimate of six analysts surveyed by Bloomberg. Ebitda fell 19 percent to 1.71 billion zloty in the first quarter, it said in a separate statement today.

Before it's here, it's on the Bloomberg Terminal.