PGE Utility Slumps as Asset Writedowns May Hurt Dividend

PGE SA slumped after it said it may cut the value of its assets, potentially lowering dividends.

The shares of Poland’s biggest power producer fell as much as 3.8 percent before trading 1.8 percent lower at 17.15 zloty by 12:24 p.m. in Warsaw, the least since July 9. That values the state-controlled utility at 32 billion zloty ($8.4 billion).

PGE delayed the release of second-quarter earnings by three weeks to Aug. 31 and may devalue assets, it said in a statement after the market closed Tuesday. The company plans to invest 50 billion zloty through 2020 including in its biggest project, a coal-fed power plant in Opole, amid plummeting electricity prices and increased competition from wind generation.

“This may impact dividend payouts,” Bartlomiej Kubicki, a Warsaw-based analyst at Societe Generale SA, said by e-mail. “PGE’s dividend policy is based on net income rather than cash flow, while its capex needs for next years are significant.”

The Warsaw-based utility will return 40 percent of its 2014 consolidated net income to investors while the policy envisages paying shareholders 40 percent to 50 percent of profit.

Tauron Polska Energia SA, PGE’s smaller competitor, sees “no significant” asset writedowns for the first half of this year, Chief Financial Officer Krzysztof Zawadzki said by e-mail, adding that the company will conduct “standard” tests at the end of 2015. Enea SA still plans to publish earnings on Aug. 28, spokesman Slawomir Krenczyk said by e-mail.

Tauron retreated 1 percent to 3.8 zloty, the steepest decline on a closing basis in a week, while Enea lost 0.3 percent to 15.26 zloty. Societe Generale’s Kubicki cut PGE’s price-estimate by 9.3 percent to 18.6 zloty last week due to “lower electricity price projections.”

Baseload Polish power for delivery next year has slumped 11 percent this year amid declining coal prices, according to broker data compiled by Bloomberg. Poland’s wind generation, which has the lowest operating costs once built, increased 24 percent from a year earlier in the first six months of 2015.