February 16, 2018 / 8:33 AM / 10 months ago

France's EDF stock up on strong 2018 outlook and dividend surprise

PARIS (Reuters) - EDF (EDF.PA) shares rose about 7 percent on a higher-than-expected dividend and expectations of a rebound in 2018, despite a slide in core 2017 earnings and a muted outlook for nuclear power production next year.

FILE PHOTO: An EDF worker is seen on the construction site of the third-generation European Pressurised Water nuclear reactor (EPR) in Flamanville, France, November 16, 2016. REUTERS/Benoit Tessier/File Photo

Chief Executive Jean-Bernard Levy said market conditions had been difficult in nearly all EDF’s business lines last year but he said 2018 would deliver a “rebound in our performance.”

EDF expects nuclear output of at least 395 terawatthours (TWh) in 2018, after it fell to 379 TWh in 2017, which cut French generation income by 21 percent to 4.8 billion euros (4.26 billion pounds). With all reactors running, EDF can produce 420 TWh.

EDF shares were among the top gainers on the pan-European STOXX 600 index .

EDF booked a 1.4 billion euro gain on the sale of a 49.9 percent stake of its power grid unit RTE, boosting net profit 11.3 percent to 3.17 billion euros. Excluding non-recurring items, net profit was down 31 percent.

EDF proposed a 0.46 euro a share dividend, corresponding to a 60 percent payout ratio and beating forecasts for 0.31 euro.

“The outlook for 2018 is confirmed and the better than expected dividend should reassure the market,” Barclays wrote.

For the third year in a row, EDF proposed a dividend in shares to preserve cash, a move approved by the government which has a 83.5 percent stake.

EDF said last year’s capital increase and the 2015-2017 share dividends boosted its balance sheet by 9 billion euros. EDF will not offer a scrip dividend on 2018 earnings.

EDF’s head of nuclear power Dominique Miniere said he expected EDF to restart its Fessenheim 2 and Paluel 2 reactors in 2018 but was cautious about the longer term reactor outlook.

EDF faced extended unplanned outages and long maintenance shutdowns last year at many of its 58 French reactors. The regulator ordered four reactors closed for months for safety reasons.

Despite forecasts for a pick up in nuclear output in 2018, Levy said 2019 output would fall, as Fessenheim nuclear plant would close permanently and the new Flamanville reactor would still be starting up. There would also be several major maintenance outages.

Heightened competition from Direct Energie DIREN.PA, Engie (ENGIE.PA) and new entrant Total (TOTF.PA) eroded EDF’s market share to 85.5 percent of consumption.

EDF lost nearly 1 million customers last year after losing 600,000 in 2016, but it said some clients had returned. At the end of 2016, EDF had 25.6 million residential customers, compared to 27.8 million five years ago.

FILE PHOTO: Workers climb the tower of France's state-owned electricity company EDF to check the structure in La Defense, near Paris, January 23, 2018. REUTERS/Philippe Wojazer

EDF said it would cut its retail costs in response and will launch new price offers, notably for green power.

EDF’s 2017 revenue fell 2.2 percent to 69.6 billion euros, core EBITDA earnings fell 16.3 percent to 13.7 billion euros.

After booking a negative cash flow of 1.56 billion euros in 2016, its cash burn narrowed to 209 million. EDF targets slightly positive or close to balance 2018 cash flow, excluding investments in its Linky smart meters and asset disposals.

Reporting by Geert De Clercq; Editing by Richard Lough and Edmund Blair

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