E.On Earnings: 2023 Guidance Appears Conservative After a Strong Start to the Year

We confirm our EUR 11 fair value estimate after no-moat E.On EOAN posted a strong earnings rebound in the first quarter, slightly above FactSet consensus. The firm now guides for the upper end of its 2023 guidance. We believe it will be exceeded. However, this appears more than priced in as the shares look overvalued.

Helped by an easy comparison basis, adjusted EBITDA went up by 30% to EUR 2.72 billion, driving a 52% jump in adjusted ordinary income to EUR 1.03 billion.

Customer solutions’ EBITDA nearly doubled as the year-ago quarter was hit by a margin squeeze from a delay in the pass-through of skyrocketing energy prices. This improvement largely offset a mild 2023 winter. Networks’ EBITDA increased by 30% on regulated asset-base growth and temporary tailwinds like the recovery of network losses that hit the business’ profitability in 2022 and lower-than-expected redispatch costs due to the fall in wholesale power prices. The latter will have to be returned to grid customers over the next three years.

E.On indicates that it should reach the upper end of its 2023 guidance of EUR 7.8 billion-EUR 8 billion and EUR 2.3 billion-EUR 2.5 billion for adjusted EBITDA and net income, respectively. After the May 10 strong print, we are confident that guidance will be exceeded and maintain our EUR 8.25 billion and EUR 2.52 billion estimates for EBITDA and net income, respectively.

Despite the earnings rebound, free cash flow was negative EUR 1.9 billion, worse than the negative EUR 1.4 billion posted last year. Key to that is a EUR 3.9 billion working capital deterioration, EUR 1.2 billion higher than last year. This is surprising given the fall in commodity prices in the meantime. In the wake of negative free cash flow, economic net debt increased by EUR 2.4 billion to EUR 35.1 billion.