Eurostoxx50: Gaz de France Suez
Company Overview Gaz de France Suez is the result of a merger between GDF and Suez in 2008. The company is set up around six divisions: (i) France Energy (6.5% of the EBITDA’11E), the first supplier of gas (Twh 289), second producer and supplier of electricity (34 Twh); (ii) European and International Energy (that supposes 43% of EBITDA’11) that besides Electrabel (leader in Belgium, 14% of EBITDA’11) includes the listed subsidiary International Power (70% GZS, 22% of the EBITDA’11), resulting from the reverse fusion (without cash disbursement) of its International business; (iii) Global Gas and GNL (12.4%of the EBITDA’11), the greatest marketer of gas in Europe (100 BCMs/year) third natural liquid gas importer in the world; (iv) Infrastructures (19.5% of EBITDA’11e) first in Europe based on transmission and gas distribution assets, second in Europe based on capacity; (v) Energy Services and others (4.4% of EBITDA’11e), (vi) Suez Environment (14.2% of EBITDA’11e).
Company Strategy Last 9 December GSZ held its Investor’s Day, during which the company pointed out that it will base its strategy on (i) Accelerating the development of its plans in the countries of greatest growth; (ii) Strengthen the integration and optimization of its assets on the mature markets; (iii) Maintain a balanced business profile; (iv) Develop activities with assured returns and recurring cash flows. In addition, it reiterated its investment criteria in four areas (strategic, financial, legal and environmental, and social and good governance) to create value.
The company also committed to maintaining a solid financial structure with a strong cash generation: it pointed out that it expects a ratio equal to or less than a net debt/ EBITDA of 2.5X, that will allow it to maintain a credit rating of “A”. It also pointed out that it will maintain an investment level of 11bn euro/year and that it will assume the medium term financing needs of International Power for which it will optimize its balance sheet with the sale of assets in the amount of €1bn (<6% of the total).
Latest Results Published Last 27 October it presented its results for the third quarter of 2011 that were a bit better than expected by the market consensus.
GDF SUEZ confirmed again the EBITDA’11 objective of €17,000 – €17,500mn (vs. the €16,779mn of the consensus) although it pointed out that this objective does not take into account the effect of the climate (that during the first 9 months of the year resulted in – €480mn), nor the effect of the freezing of tariffs that GSZ estimates to be – €390mn (- €340mn 2S’11). Thus the final EBITDA of the company, taking into consideration these factors could be around €16,130 – €16,630mn.
Business Outlook By divisions, the objectives are: (i) Generation Division: increase the installed capacity up to 150 GW in 2016 (+30.4% of the installed capacity of 2011) and increase the renewable capacity +50% in 2015 (vs. 2011); Gas Division: increase production from 65 million in 2014-2015 and double the sales of liquefied natural gas to emerging markets in 2020 (vs. the current 34TWh); (iii) Services Division: increase revenues through energy efficiencies by +40% in 2016-2017 and reach the figure of 2 million smart water meters in 2014 (an increase of 150% above the current figure).
They also expect to achieve a waste recovery ratio 2 million tons per million tons eliminated in 2017. Although we consider these objectives to be ambitious, we believe that the positive momentum the company is experiencing at present and the financial situation will allow it to meet its objectives.
Conclusion Despite GSZ elevated ratios (PER’12e of 12.2X and an EBITDA12’e of 6.7X vs. the 9.3X and 6.2X of the sector) we believe that its defensive profile (identified growth and having origin in the investment plan) continues to be attractive. The negative evolution of the company (-18.95% during the year vs. -14.40% ES50) due to external factors and not intrinsic to the company, as well as the announcement made last 15 December regarding the increase in tariff in France makes us consider that it is a good purchase opportunity.
This increase in tariffs is positive for GSZ since the company estimates that the last tariff freeze generated a tariff deficit in the 2S’11 of €390mn (approximately 3% of the EBITDA). We also consider as a positive factor that would support the idea of investing in the company the attractive revenue for the shareholder with a present yield of 7.2% and the underlined company objective of maintaining the DPA’11 at around 1.53 euros/share.
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