Verbund Earnings: Boosted by High Power Prices, Guidance Confirmed

Wide-moat Verbund VER released good first-first half results and narrowed its 2023 guidance range. We confirm our EUR 66 fair value estimate based on long-term power price assumption of EUR 60 per megawatt hour. We calculate that the current share price implies a long-term power price of EUR 70/MWh.

First-half EBITDA increased by 64% to EUR 2.3 billion. Looking at just the quarter, EBITDA jumped by nearly 130%, sharply accelerating from first quarter’s 19% growth. Net profit jumped by nearly 80% to EUR 1.3 billion.

The key growth driver was achieved power price that amounted to EUR 182/MWh versus EUR 70/MWh in the first half of 2022. Although being 5% below the long-term average, hydropower output rose by 7% during the first half. Grid’s EBITDA rose by 32% mostly thanks to the gas networks.

Verbund narrowed its 2023 EBITDA guidance range from EUR 3.7 billion-EUR 4.3 billion to EUR 3.8 billion-EUR 4.2 billion, with the EUR 4 billion midpoint unchanged, and its net income guidance from EUR 2 billion-EUR 2.4 billion to EUR 2.05 billion-EUR 2.3 billion with the midpoint tweaked by EUR 25 million to EUR 2,175 million. We might tweak downward our EBITDA and net income estimates of EUR 4.12 billion and EUR 2.23 billion, respectively, because of the hydro conditions below the long-term average in the first half, but this will not have an impact on our long-term estimates.

The firm has hedged 88% of its 2023 expected hydro volumes to EUR 177/MWh and mentions that final 2023 achieved power prices would amount to EUR 169/MWh on a mark-to-market basis, a bit shy of our EUR 171/MWh. For 2024, it hedged 44% at EUR 156/MWh, implying a mark-to-market achieved power price of EUR 149/MWh, squarely in line with our estimate.