Despite weather headwinds, 1Q17 results were mostly ahead of market expectations, which on average resulted in a positive performance for stocks on results days. And though conditions were difficult for generation and supply, utilities kept full-year guidance.
Veolia, RWE, EON and Gas Natural had the most positive stock reaction on results day… Veolia's management's more optimistic view on organic growth, post a cautious tone on the FY16 call, triggered the positive stock reaction. Suez was also very strong on the day of Veolia's results on expectations that it could have benefitted from the same trends. RWE also reported strong results, which gives us confidence it should reach top end of guidance for the year. Gas Natural's stock performance was triggered more by the possibility of a stake sale of the Spanish gas distribution business, which management confirmed it is studying (but has not taken any decision). We found Gas Natural's results to be weak. In our view, EON reported weak results, however the one-off positive pension adjustment within the grids business (disclosed as being worth c€100m for FY17) may have led to the good stock performance on the day.
...Endesa, Verbund, Dong and Innogy had the worst. Endesa reported results in line with our expectations, so we attribute the negative share reaction to profit taking following the stock's strong performance ahead of results and concerns on guidance. Dong's weak 1Q (mainly seasonality) may have discouraged investors on the day, but guidance was maintained and we believe it can meet it. As for Verbund, while the company raised guidance on the back of stronger thermal results, the company discussed expectations for power to trade within a €25-35/MWh range medium term. Finally, Innogy's poor performance in UK supply (and management's recognition that the outlook for this business has deteriorated) led to the negative reaction on the day.