POWER SWITCH: e.on TO ofi, UNIPER TO efi. iN THIS REPORT WE UPDATE OUR VIEWS ON e.on AND UNIPER, UPGRADING e.on TO ofi FROM efi, AND CUTTING UNIPER TO efi FROM ofi.
e.on: Upgrading PT to €8.5 (€7.4 previously), rating to OW (from EW).
FOLLOWING CHANGES INDICATED BY e.on IN ITS RECENTLY UPDATED CAPITAL-MARKETS PRESENTATION, WE REVISE THE DISCOUNT RATES on E.ON’s nuclear AND PENSION PROVISIONS. oWING TO THE SIGNIFICANTLY LOWER ANNUAL ACCRETION CHARGES ON THESE PROVISIONS THIS GIVES RISE TO, WE UPGRADE OUR ePs ESTIMATES OVER 2017-20 BY AN AVERAGE OF 16$. aT THE SAME TIME, WE INCREASE OUR ASSUMED DIVIDEND-PAYOUT RATIO OVER 2017-20 TO 50$ FROM 40$, RESULTING
IN AN AVERAGE INCREASE IN OUR dPs FORECASTS OVER 2017-20 OF ~45$. oN OUR REVISED NUMBERS, e.on NOW TRADES ON FORWARD P⁄e MULTIPLES OF 10.1X FOR 2017e AND 2018e, A SIGNIFICANT DISCOUNT TO BOTH INTEGRATED UTILITIES (12.6X AND 11.9X RESPECTIVELY) AND NETWORK UTILITIES (15.5X AND 14.9X). fiITH ITS PROSPECTIVE DIVIDEND YIELD OF 5$ FOR BOTH 2017 AND 2018, e.on IS ALSO NOW COMPETITIVE WITH SECTOR PEERS, AND WITH OUR sotPDERIVED Pt raised to €8.5 from €7.4, we upgrade to OW from EW.
Uniper: Upgrading PT to €14.3 (€12.8 previously), rating moved to EW (from OW).
After marking to market changes in the value of Uniper’s Russian generation business AND REVISING DOWN THE VALUE OF NON-INTEREST BEARING PROVISIONS, WE ARE UPGRADING OUR Pt FOR THE SECOND TIME SINCE INITIATING coverage, with a new fair value of €14.3/share (€12.8 previously). aT THE SAME TIME, UNIPER NOW LOOKS FAIRLY VALUED TO US FOR THE TIME BEING, AND WE THEREFORE CUT OUR RATING TO efi FROM ofi, ALTHOUGH WE THINK IT REMAINS AN ATTRACTIVE STORY WITH A STRONG MANAGEMENT TEAM FOCUSED ON COST AND CAPEX DISCIPLINE. aFTER ITS STRONG RUN SINCE LISTING, UNIPER NOW TRADES ON FORWARD P⁄e MULTIPLES OF 12.6X AND 10.2X FOR 2017 AND 2018 RESPECTIVELY, VERSUS 12.8X AND 12.2X FOR THE AVERAGE OF iNTEGRATED AND GENERATOR UTILITIES, AND YIELDS 4.2$ AND 5.5$ FOR 2017 AND 2018 RESPECTIVELY, COMPARED WITH 5.2$ AND 5.5$ FOR THE iNTEGRATED AND GENERATOR UTILITIES.