Engie Sets 2025 Guidance Above Expectations With Dividend Too Juicy To Be Snubbed

We don’t expect to materially change our EUR 18 fair value estimate after no-moat Engie ENGI posted record 2022 profits and set 2025 guidance above our estimates and consensus. The firm will pay a EUR 1.4 dividend on 2022 earnings, 65% higher than in 2021, implying a 10% yield. Normalization of profits expected in 2023 points to a EUR 1.08 dividend, still implying a juicy 7.9% yield, reflecting the material undervaluation of the shares.

2022 recurring net income jumped by 78% to EUR 5.2 billion, within the EUR 4.9-5.5 billion guidance range, slightly above consensus’ EUR 5.1 billion but below our EUR 5.36 billion. Ordinary EBIT jumped by 47% to EUR 9 billion during the year but decreased by 12% during the fourth quarter chiefly because of the impact of new inframarginal taxes. In line with peers, main growth driver in 2022 was the trading business called global energy management sales, whose EBIT surged more than fivefold thanks to extreme commodity prices volatility.

Engie increases its 2023 recurring net income guidance from EUR 3.2-3.4 billion to EUR 3.4-4 billion. The latter’s EUR 3.7 billion midpoint implies a 29% decline versus 2022, chiefly driven by the profit normalization of GEMS. It is 2% shy of our and consensus’ EUR 3.8 billion. The bulk of our downside is driven by higher financial costs on account of rising interest rates and debt.

The midpoint of the 2025 recurring net income guidance of EUR 4.4 billion is 36% above our EUR 3.4 billion estimate and 29% above the consensus. A key driver of our downside is our assumption of normalized European power price of EUR 60/MWh whereas the group’s guidance is based on forward power prices at end-2022. They have declined year to date—implying some downside to the guidance—but remain well above EUR 60/MWh involving upside to our estimates. Also, Engie indicates that GEMS’ profits will stabilize well above the pre-2022 levels thanks to new assets like batteries and volatility that should remain elevated.