Belgian Regulator Unexpectedly Requests Engie Increase Nuclear Provisions; Shares Cheap

On completion of its triennial revision, the Belgian Commission for Nuclear Provisions, or CPN, requested no-moat Engie increase its nuclear provisions by EUR 3.3 billion. The latter includes EUR 2.9 billion to be borne by Engie’s subsidiary Synatom, which supplies uranium and handles radioactive waste management. This increase is chiefly driven by a decrease in the discount rate from 3.25% to 3.0% and increase in the decommissioning cost estimate. The former is a surprise to us and the market against a backdrop of rising interest rates. Engie claimed for an increase of EUR 0.9 billion. Accordingly, it will submit an adapted proposal for discussion that should conclude by end-March 2023, at the latest. Then, the group will assess whether to submit an appeal to the Court of Markets. In any case, Engie will have to book a EUR 2.3 billion increase in its nuclear provisions by year-end. Should Engie fail to lower the EUR 3.3 billion total provisions increase requested by the CPN, this would shave EUR 1 off our EUR 18 fair value estimate or 6%. This would still leave significant upside to the current share price. The Dec. 20 pullback offers an entry point.