EDF Falls to Two-Week Low After Sliding Power Prices Hurt Sales

  • Revenue also dragged down by mild winter, greater competition
  • Rising exposure to wholesale market seen threatening earnings

Electricite de France SA dropped to a two-week low in Paris trading after reporting a decline in sales amid falling power prices and rising competition. 

Europe’s largest electricity producer sank as much as 6.1 percent to 10.94 euros on Wednesday, the lowest intraday price since April 26 and the biggest slump among companies on the Euro Stoxx Utilities Index. On Tuesday EDF said first-quarter revenue fell 6.7 percent from a year earlier to 21.4 billion euros ($24.4 billion).

European utilities have suffered from falling prices, while a milder-than-normal winter damped demand. Germany’s EON SE said first-quarter sales dropped 12 percent, while RWE AG’s results are also expected to reflect the slump in prices on Thursday. EDF faces additional headwinds as regulated tariffs in France are gradually phased out, while moves by rivals to grab market share force it to sell more surplus power on the wholesale market.

“EDF’s earnings are set to come under increasing pressure due to its rapidly rising exposure to wholesale power prices,” Jefferies International Ltd. said in a research note.

Cost Cuts

To fund investments and adapt to falling commodity prices and increased competition, EDF is cutting costs and preparing a 4 billion-euro share sale as well as a swath of asset disposals. It’s facing multibillion-dollar expenses in coming years, including the renovation of its French nuclear fleet and a possible reactor construction project in the U.K.

The Paris-based company on Tuesday reiterated its earnings target for this year and cash-flow guidance for 2018. The utility cut its forecast for French nuclear output in 2016, citing an accident during maintenance at its Paluel reactor that will keep it shut until at least next March.

“We welcome confirmation of 2016 objectives, but this needs to be balanced against the clear message about the intensification of competition, and lowered targets for nuclear output in France,” Martin Young, an analyst at RBC Capital Markets in London, said in a note.

EDF shares traded down 4.9 percent at 11.08 euros as of 12:38 p.m. Paris time, extending their decline this year to 18 percent.

Downgrade Concern

The utility’s cost-saving and funding plans are “appropriate,” even if it’s downgraded by rating companies, Chief Financial Officer Xavier Girre said on a conference call on Tuesday. His predecessor, Thomas Piquemal, said last week that a downgrade is likely because large nuclear investments such as the proposed U.K. project will increase its risk profile.

EDF intends to make a final investment decision on building two new reactors at Hinkley Point in southwest England with a Chinese partner at a cost of 18 billion pounds ($26 billion) once it’s completed a consultation process with employee representatives.

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