* Nuclear reactors' restart to be delayed or may never happen, says Belgian TV
Yesterday night, the Belgian TV channel VRT reported that several “reliable sources”
indicated that tests performed on the Doel 3 and Tihange 2 nuclear reactors (15TWh
output pa, c2GW capacity) revealed thousands of “micro-fractures” in the vessels.
According to the TV report, the reactors may not restart before spring 2015, at the
earliest, and may never restart at all.
* Discovery of hydrogen flakes not a novelty; that is why the plants were offline
The discovery of hydrogen flakes has been the reason to take these reactors offline;
ever since, about one hundred tests have been carried out. Only one test gave results
that were not in line with the initial expectations – a piece of steel with hydrogen flakes
undergoes 40y of irradiations concentrated in one month, and is then heated up /
cooled down, to simulate a critical situation. Given the timing of the results, and that
the government and the nuclear agency will have to analyse them, we currently assume
a re-start in Jan-2015. Although we wouldn't entirely dismiss it at this stage, the TV
report appears to be quite speculative.
* Still, risk-perception around reactors-restart is on the rise: 6-7% EPS risk
Doel 3 and Tihange 2 generate some €345m net income pa, after the payment of the
nuclear levy. Considering the closure of the reactors has triggered a surge in domestic
power prices, the ultimate net impact would be <€200m, or c6-7% of adjusted
earnings. Assuming the permanent closure of Doel 3 and Tihange 2, our 2015E
adjusted EPS of €1.30 would drop to €1.22 (implied 15.6x PE).
* Valuation: at premium but defendable due to better growth / business mix
Thanks to its global positioning, diversified business mix and re-leveraging potential, we
expect GDF Suez to deliver c4% bottom line annual growth through to 2020. This,
coupled with a >5% DY should keep supporting the stock. We set our PT based on a
target DY of 4.75% (sector average), which implies a PT of €21ps.