FRANKFURT (Reuters) - German energy group E.ON (EONGn.DE) on Wednesday said it would reach the upper half of its 2018 profit outlook, sending its shares to a 7-week high as cost cuts and higher earnings at its renewables unit boosted profits.
E.ON said nine-month profits at its renewable unit rose 14 percent to 283 million euros ($319 million) buoyed by the commissioning of new wind farms and striking a more positive tone than rivals Innogy (IGY.DE) and EnBW (EBKG.DE).
Both peers this week lowered their outlooks for renewables.
E.ON is now expecting to reach the upper half of its adjusted earnings before interest and tax (EBIT) target of 2.8 to 3.0 billion euros as well as its adjusted net income target of 1.3 to 1.5 billion euros in 2018.
Shares in the group rose as much as 2 percent to reach their highest level since Sept. 28, making them the second-biggest gainers among German blue-chip stocks .GDAXI.
Brokerage Bryan, Garnier & Co kept a “buy” rating on the stock, arguing that, apart from good results, a planned takeover of Innogy’s network and retail activities, first announced in March, should give E.ON enough scale to invest in growth.
E.ON confirmed it expects the transaction, under which Innogy’s and E.ON’s renewable assets will be transferred to peer RWE (RWEG.DE), to result in 600-800 million euros in annual synergies from 2022 onwards.
“The increased scale should enable E.ON to pursue its investment growth strategy in the Energy Networks business while likely limiting margin pressure in the challenging European retail businesses,” Bryan, Garnier & Co analyst Pierre-Antoine Chazal wrote.
Fierce retail competition has been a problem for most utilities across Europe and E.ON also toned down its view for that business, now expecting adjusted EBIT in its customer segment to be significantly below last year.
It had previously expected a decline.
“Anyone who talks with the people in our sales organization knows that the competition remains fierce. Our customers expect a lot, and our competitors aren’t idle,” Chief Financial Officer Marc Spieker told journalists.
Editing by Thomas Seythal and Jason Neely