Verbund Earnings: 2023 Guidance Raised on Lower-Than-Expected Windfall Tax

Wide-moat Verbund VER released solid nine-month results and upped its 2023 guidance. The latter points to a 2023 dividend of EUR 3.42, 5% below last year that was boosted by a special dividend and implying a 4.2% yield. We confirm our EUR 66 fair value estimate based on our long-term power price assumption of EUR 60 per megawatt hour. We calculate that the current share price implies a long-term power price of EUR 90/MWh.

Nine-month EBITDA jumped by 84% to EUR 3.55 billion. Looking at just the third quarter, EBITDA jumped by about 130%, in line with the second quarter. Net profit surged by 86% to nearly EUR 2 billion.

The key growth driver was a jump in the achieved power price to EUR 176/MWh at the end of September from EUR 112/MWh last year. Sequentially, the achieved power price decreased from EUR 182/MWh in the first half because of the recent decline in wholesale power prices. Hydropower output rose 11% over the first nine months thanks to an improvement in hydro conditions that were 16% below average in 2022 versus 7% below in 2023. Grid’s EBITDA nearly doubled, improving from the first half’s 32% growth thanks to an easier comparison basis.

Verbund upped its 2023 EBITDA guidance range by EUR 300 million to EUR 4.15 billion to EUR 4.45 billion and its net income guidance by 11% to EUR 2.25 billion-EUR 2.45 billion. The guidance raise is chiefly driven by a windfall tax on hydro profits that should be EUR 0.3 billion lower than previously expected. We will tweak upward our 2023 estimates to incorporate this, but this will not impact our long-term estimates or valuation.

At the end of September, the firm has hedged 95% its 2023 expected hydro volumes at EUR 173/MWh and mentions that final 2023 achieved power prices would amount to EUR 171.6/MWh on a mark-to-market basis, bang in line with our estimate. For 2024, it hedged 60% at EUR 145/MWh, implying a mark-to-market achieved power price of EUR 137/MWh, below our EUR 149/MWh estimate.