December 15, 2016 / 8:26 AM / 7 months ago

EDF shares slump after warning of lower earnings in 2017

The logo of France's state-owned electricity company EDF is seen on the company's headquarters in Paris, France, November 24, 2016.Charles Platiau

PARIS (Reuters) - French utility EDF (EDF.PA) lost more than a tenth of its stock market value on Thursday after it warned of lower 2017 earnings due to an expected drop in power prices and the impact of regulatory issues on its output.

EDF late on Wednesday set a target for 2017 core earnings before interest, tax, depreciation and amortisation (EBITDA) late of 13.7 billion-14.3 billion euros (11.53 billion-12.02 billion pound) compared with analysts expectations of around 15.8 billion and down from its 2016 target of 16 bln-16.3 bln euros.

Like all European utilities, EDF is suffering from overcapacity in the power markets due to continuing new investment in renewable energy like wind and solar, while an EU-led drive for energy efficiency and a weak French economy depress demand.

The utility said its 2017 earnings would be lower because of an expected decrease in French and UK power prices compared to 2016 and because of a legal requirement under which the former monopoly provider is forced to sell up to a quarter of its nuclear production to competitors.

The 2016 target had already been cut twice this year due to low power prices and a string of nuclear reactor outages ordered by French nuclear regulator ASN following the discovery of high carbon concentrations, which could weaken their steel.

EDF shares were down 12.1 percent at midday, making them the biggest loser on the STOXX Europe 600 index and on the French stock market .SBF120.

EDF shares have now lost nearly 30 percent this year. The shares traded around 9.91 euros, holding above an all-time intraday low of 9.13 euros set in February.

"EDF once again disappointed with its 2017 outlook, that was worse than what many analysts had forecast, who had predicted a more moderate downturn in earnings," said Gregoire Laverne, fund manager at Roche Brune Asset Management. He said he preferred French utility Veolia (VIE.PA) to EDF shares.

Barclays said in a note that EDF's EBITDA is likely to hit a trough in 2017 but the group is on track to deliver its medium-term strategic plan with significant opportunities for recovery in 2018.

The utility is looking to sell about 10 billion euros worth of assets by 2020, in an effort to reduce debt and free funds for its 18 billion pound ($23 billion) project to build two nuclear reactors in Britain and to finance its acquisition of the engineering business of troubled nuclear group Areva (AREVA.PA).

EDF also plans a 4 billion euro capital increase early next year, to which the French government - which owns 85.6 percent of EDF - plans to contribute 3 billion euros.

"Although the company has made progress on its balance restructuring programme, ongoing operational challenges related to the French nuclear fleet along with relatively low power prices make for a tough outlook," Jefferies said in a note.

Reporting by Sudip Kar-Gupta and Geert De Clercq; Editing by Andrew Callus and Susan Fenton

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