Company Trend Analysis - E.ON: Stronger Balance Sheet To Support New Business Model - OCT 2017


BMI View: The outlook for E.ON has stabilised now the worst of the losses associated with write-downs on conventional assets are behind it and uncertainty over the company ' s nuclear liabilities has lifted. Critically , the refund ing of the German nuclear fuel tax has also improved the balance sheet - giving the utility more financial flexibility as it pursues growth in renewables, networks and customer solutions.

German utility E.ON's radical restructuring efforts and the decision to spin off its conventional assets into Uniper have reduced exposure to volatile wholesale electricity and commodities prices and have stabilised the outlook for the utility. We believe that the company that has emerged is now in a position to realise steady growth and that its focus of investing in networks, renewables and energy services will pay off, as these areas will become increasingly important as energy markets evolve ( see ' Power Sector Transformation Towards Low Carbon Economy', September 1).

We have long stated that utilities would have to respond to major structural changes to the way that electricity is generated and consumed - particularly in bellwether markets like Germany - by focusing on growth areas like renewables, segments that will ensure a predictable cash flow (networks) and innovative new business models that will utilities to capitalise on the transformation of electricity from a commodity into a service (customer solutions) ( see ' Utilities: Renewables, Services & EVs Shape Corporate Strategy', September 7). This is what E.ON is doing and this looks to be strategically sound, in line with our view that many of the changes that are taking place in its core European power markets, such as the compression of wholesale electricity prices, are structural and are here to stay (see 'Generation Shift To Sustain Pressure On Utility Margins', May 22 2016).

Weak Q1 But Signs Of Improvement In Q2
E.ON Key Financial Results H116 And H117 (EURmn)
Source: BMI, E.ON

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