Increasing FVE for Engie to EUR 17.50 on High Power Prices and EU Cap; Shares Materially Undervalued

We raise our fair value estimate for no-moat Engie by 6% to EUR 17.50 from EUR 16.50 after increasing our 2022-24 recurring net income estimates by 32% on average due to higher power prices. The hedged price of European nuclear and hydropower generation for coming years has significantly increased since our last update. For the unhedged portion through 2024, we apply the EUR 180/megawatt-hour power price cap for nongas power producers proposed by the European Commission, still well below current extreme forward prices. Our long-term estimates, based on our normalized power prices forecasts of EUR 60/MWh, are unchanged. Our new EUR 17.50 fair value estimate offers 38% upside to the current share price.