EON Dividend Hike Seen No Proof of Rebound After Record Loss

  • Utility tends to be overly optimistic, Union Investment says
  • Sale of grid business is ‘biggest lever’ for valuation

EON SE’s forecast for higher dividends is no guarantee of good times ahead for Germany’s biggest renewable energy producer.

A bigger payout “doesn’t reflect certainty about a positive development but the hope for it,” said Thomas Deser, a fund manager at Union Investment that holds EON stock. The Essen-based utility has proposed paying 30 euro cents ($0.33) a share for this year, a 43 percent jump on the level proposed for 2016.

EON, once Germany’s biggest utility, is trying to find its feet after writing down billions of euros related to the Uniper SE fossil-fuel business it spun off last year. After reducing exposure to volatile wholesale power prices, the company is now facing shrinking subsidies for its green energy and falling fees from consumers using its grid after 2018.

“It’s almost a tradition with EON to expect a more positive future and then being taken down by realities,” Deser said by phone. He doesn’t see “real growth yet,” with any dividend increase for this year generated by planned cost cuts.

Christian Drepper, a spokesman for EON, declined to comment.

Read here on how Germany cuts renewable costs with auctions

EON is proposing a dividend of 21 euro cents for 2016 at its annual general meeting on Wednesday. The utility reports first-quarter results on Tuesday.

Union Investment’s Deser will be seeking progress reports on EON’s plans to cut costs by almost half a billion euros a year and to reduce debt by about 24 percent after the utility’s record loss in 2016.

Share Sale

After raising 1.35 billion euros in March through a share offering, EON is “newly positioned, while not perfectly,” Deser said. The funds will cut borrowing and help pay for EON’s nuclear waste storage obligations under Germany’s exit from atomic power by 2022.

“Operationally the business is largely stagnating with limited growth in renewables and risks in retail,” particularly in the U.K., RBC Europe Ltd. analysts led by John Musk said Monday in a note. EON’s “dividend attractions are less” than for RWE AG and Uniper through the end of the decade, the analysts said.

EON has gained 5.8 percent since January after falling in the previous two years, though it still trails the 11 percent increase in Germany’s benchmark DAX index. Uniper, of which EON holds almost half, has jumped 24 percent this year.

Selling a stake in its grid business, for which activist shareholders such as Knight Vinke have pushed, “would be the biggest lever for the company’s valuation,” said Deser. EON will probably use that option only if its cost cutting plans fail, he said.

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