Veolia Earnings: Solid Results In Line With Consensus; Management Raises 2023 Guidance

We don’t plan to materially change our EUR 30.50 fair value estimate after no-moat Veolia VIE released solid first-half results, though they were in line with the company-compiled consensus and management increased its 2023 EBITDA guidance. Shares are trading in 3-star territory.

Turnover, excluding energy prices, grew by 5.2% in the first half, slowing down from the first quarter’s 6.3%, chiefly driven by the water business. Its turnover increased by 8.4% organically, down from the first quarter’s 9.9% because of lower water consumption in France due to rainy weather. Price increases during the first half amounted to 4.4% for the water business and 4.9% for waste, accelerating from the first quarter’s 4.1%. Waste volumes declined by 0.2%, slightly deteriorating from an increase of 0.1% in the first quarter.

First-half EBITDA increased by 7.1% to EUR 3.16 billion. During the second quarter, EBITDA grew by 6.1%, slowing down from the first quarter’s 8.1% growth because of a negative scope effect linked to the disposal of the U.K. waste business from Suez. In the first quarter, the latter was more than offset by 17 more days of consolidation from Suez. Organically, EBITDA grew by 8.6% in the second quarter, improving from 8% in the first quarter. As usual, the main positive drivers were net cost savings and synergies amounting to EUR 73 million and EUR 84 million during the first half, respectively. The former is in line with the annual target, while the latter is above the EUR 134 million target but in line with our EUR 160 million target.

Veolia raised its 2023 guidance of 5%-7% EBITDA growth to the upper end of this range, implying full-year EBITDA of EUR 6.63 billion and 4.4% growth in the second half, which looks within reach. Accordingly, we should raise our EUR 6.5 billion estimate, which is at the bottom end of the previous guidance. The key driver will be a higher positive effect from energy prices, notably related to the start of a biomass plan.