EDF FP – UPDATE – HOLD – Troubles in splitting the atom

*Stock dropping on BFM article raising concerns about delays to break up for another 6 months which could pose issues passing the reform in parliament this year thereby delaying the split by a year at least

*Elections in France are in March 2022 which is likely to cause another obstacle in such a delay

*While the French want price increases the EU wants them to split the company which is now reportedly causing the negotiations to stall – the only reason that the French could approve a split would be to finance the new reactors they want to build

*We struggle to see the reasoning for the French to want the company combined as a split seems to benefit across the board – except for maybe unions

*French Environment minister and EDF’s CEO will be in National Assembly hearings on 4th and 10th February which hopefully will provide further clarity

*We started looking closely at EDF back in 2017/2018 when the talks about the split started – in 2019 there was worries that the split would not happen and the stock dropped to EUR 9 which is likely to be a strong support level again

*Our DCF comes in at EUR 15 which leaves a 40% upside from here although we would like the catalyst to push it higher

*We halved our position end of November when the stock spiked to EUR 13 on the back of split optimism – we are looking to add but want more clairty on the situation before adding

EDF FP – Atomic Performance Continues +32.7% to date

Thursday • 17 December 2020 • 17:51

EDF Raises 2020 Profit Target as Nuclear Output Recovers

*We booked half of our position at the end of November and remain long for the balance

*Although we have already had alot of the short term upside on the potential break up and nuclear power pricing reform, EDF is also implementing self help strategies to boost earnings as the revision this morning suggests efforts to slash costs to offset the impact of the virus are working.

We have a price target of EUR 14 based on the current mixed energy business.

EDF cheapest ESG play in Europe if ignoring the Nuclear assets – this will cause large repricing for the renewable businesses post a potential split – as an example EDF trades on a 2 year forward EV/EBITDA multiple of 5.2x while SGRE SM, VWS DC, ORSTED DC all trade around 22x

*We increase our price target to EUR 22 as we continue to believe that over the medium/long term the company will be valued on renewable potential

EDF FP – CLOSING HALF – Atomic performance, + 32.2% ABS +23.8% REL

Friday • 27 November 2020 • 13:09

*A lot of the previous upside from the mixed energy business now priced in while renewable future prospects still need to be re-rated
*Detailed reports out that government has reached an agreement dividing it into ‘Blue’ which is the Nuclear along with the Hyrdo business as a subsidiary and then the Green separate
*Reports the government has reached an agreement on the structure of a break-up has now been agreed dividing it into ‘Blue’ which is the Nuclear along with the Hyrdo business as a subsidiary and then the Green
*Talks between EU and France on nuclear price reform closing in 45-50EUR/MWh range for nuclear production inline with expectations
*Main risk being highlighted is opposition from unions

Upside remains decent:
*We have a price target of EUR 14 based on the current mixed energy business, another +12% from here
*EDF cheapest ESG play in Europe if ignoring the Nuclear assets – this will cause large repricing for the renewable businesses post a potential split – as an example EDF trades on a 2 year forward EV/EBITDA multiple of 5.2x while SGRE SM, VWS DC, ORSTED DC all trade around 22x
*While only around 15% of the EBITDA are from Renewables the French investment plan for CAP 30 is to focus more on renewables and hydrogen

EDF FP – Reiterate BUY – Atomic opportunity remains, +25% upside remains

Wednesday • 11 November 2020 • 10:01

*We are up +18% since we intitiated the trade and remain long

*News overnight highlights that catalyst underway although little details at this point

*Issue for a breakup scenario has been a lack of agreement between the EU and France – this seems to be underway now

*We see large potential to unlock value in case of a split with the government keeping the Nuclear assets and splitting off the renewables

*EDF cheapest ESG play in Europe if ignoring the Nuclear assets – this will cause large repricing post a potential split – as an example EDF trades on a 2 year forward EV/EBITDA multiple of 5.2x while SGRE SM, VWS DC, ORSTED DC all trade around 22x

*We have a price target of EUR 14

EDF – Buy – Nuclear Reform Key for Future

Friday • 02 October 2020 • 10:34

Interesting talk about potential reform on the Nuclear front on EDF FP – we see large value

*We see large potential to unlock value in case of a split with the government keeping the Nuclear assets and splitting off the renewables

*EDF trading very cheap compared to the rest of the ESG / Renewable sector in Europe

*Acquisition in Ireland yesterday also highlights the push to renewables {NSN QHJ2I7MB2SJP <GO>}

*Also stands to benefit from Hydrogen trend – GS says Hydrogen demand over next 25 years could imply need of 1.2tln of investment in the sector

*We have a price target of EUR 14 with a split as a possible catalyst

EDF Climbs on Investor Optmism Over Nuclear Regulation Reform {NSN QHKCP7T1UM12 <GO>}