Engie Earnings: 2023 Guidance Appears Conservative After Yet Another Strong Performance of GEMS

Engie ENGI has released very strong first-half results thanks to yet another outstanding performance of the general energy management and sales business. As a result, the guidance, which was materially upped in June, already appears conservative. In late June, Engie also reached an agreement with the Belgian government for the 10-year extension of the Doel 4 and Tihange 3 nuclear reactors, including a EUR 4.5 billion increase of the nuclear waste management provisions. In exchange, the total nuclear waste management provisions of EUR 15 billion will be transferred to the Belgian government. This means that Engie will no longer be exposed to the evolution of those costs reviewed every three years by the Nuclear Provisions Commission. This considerably derisks the equity story, since the nuclear provisions-related uncertainties have been fuelling a discount to peers like Iberdrola and Enel for years. All in all, we maintain our EUR 17 fair value estimate.

First-half ordinary EBIT increased by 32% to EUR 6.95 billion. Looking at the second quarter, the EBIT surged by 59%, accelerating from the first quarter’s 19%. Recurring net income increased by 25% to EUR 4 billion. On a reported basis, Engie posted a net loss of EUR 0.8 billion, chiefly because of the EUR 4.5 billion provisions increase.

GEMS’ EBIT surged by 3.5-fold in the second quarter, accelerating from the first quarter’s 157% jump. The business was boosted by the same drivers as in the first quarter, like the reversal of market reserves in the wake of normalizing market conditions or the positive impact of deals signed at high prices in 2022.

In late June, Engie upped its 2023 recurring net income guidance by 35% to EUR 4.7 billion-EUR 5.3 billion. After this very strong first half, the new guidance appears conservative, since its high end implies a 10% fall in the second half. We will raise our EUR 3.7 billion estimate accordingly, which will largely mitigate the impact of the nuclear provisions increase.