Pierre Sookiew

Pierre Sookiew
Contributor since: 2012
Thanks wiesje I really appreciate your relevant technical analysis.
I will try to release an update on GDF Suez as the company release H1 results. I still identify 2 key drivers : - potential growth in fast growing markets
- significant cost-cutting (a €3.5bn cost-cutting plan)
For the moment I am quite busy but I will try to write a new article
Vinci and other concessions build, finance and operate motorways. In return, these companies collect a toll.However, highways are owned by the French State.
France's prospects of emerging from recession brightened in June as the private sector shrank at its slowest pace in 10 months and the rate of job losses eased to its weakest in a year. Despite some signs of improvement, France is still in recession and economists estimate a recovery by the end of the year.
Nonetheless, my concern is about the economic policy of the government with possible new tax increases. France aims to make budget savings of around €28 billion. The state auditor warned that President François Hollande’s government would have no choice but to cut billions of euros in spending if it was to meet European Union deficit targets by 2015. But, it seems very difficult to cut public spending in a country with generous welfare and pension benefits and a bloated public sector. Consequently, the solution is...taxation (80% of all the progress in cutting the deficit in recent years had come from tax increases). For 2014, the government wants savings of €14 billion and needless to say that taxation will be a large component. Most of the tax burden should be bear by higher-income taxpayers instead of companies. After a series of tax hikes on companies since Hollande came to office, Finance Minister Moscovici said that corporate taxation would have to be mindful of not undermining firms’ competitiveness.
As for GDF Suez, my view is still positive as the group is reducing its debt. The management expects to bring it back around €30 billion euros by the end of 2014 (vs €34 billion at the end of March).
- the group plans to sell €11 billion of assets in 2013 and 2014, and seeks to raise €600 million by selling large stakes in its wind and solar activity (up to 60% of some of its wind and solar activities in France and some other European countries)
- GDF Suez is refinancing its debt at a lower cost. The company has recently launched several operations to buy back a portfolio of debt bearing an average coupon of circa 5% (outstanding corporate bonds due between 2015 and 2020). GDF Suez issued on July 3rd hybrid bonds for an aggregated amount equivalent to €1.7 billion. Hybrid bonds are increasingly popular among Utilities companies because it allows them to inflate their capital without the constraints of conventional capital increase (via a share issue), such as changing the allocation of capital.
Update
- Q1 Revenues unchanged at €24.6 billion ($32 billion)
- Q1 Ebitda -5.1% to €5 billion ($6.5 billion)
- Net debt at €34.1 billion ($44 billion)
- GDF Suez confirmed its 2013 outlook, forecasting a net recurring profit between 3.1 and 3.5 billion euros ($4-4.6 billion).
No surprises with these Q1 results in line with the yearly outlook announced by the Group. I want to flag the good perf of Global Gas and LNG business line with with strong arbitrage activity in Asia and Europe. Furthermore, colder weather conditions compared to 2012 supporting sales of natural gas in France
Pressure on margins due to weak economic environment in Europe (general decrease of electricity prices) and the outage of two Belgian nuclear plants.
Balance sheet remains strong: net debt/EBITDA ratio was 2.4x in line with the target of ≤2.5x.
I remain long on GDF Suez with a TP of $25.
In Paris, GDF Suez gains +0.75%.
Next: dividend payment April,30
- Q1 Revenues unchanged at €24.6 billion ($32 billion)
- Q1 Ebitda -5.1% to €5 billion ($6.5 billion)
- confirmed its 2013 outlook, forecasting a net recurring profit between 3.1 and 3.5 billion euros.
No surprises. Pressure on margins due to weak economic environment in Europe (general decrease of electricity prices) and the outage of two Belgian nuclear plants.
In Paris, GDF Suez gains +0.6%.
GDF SUEZ : French Gas Tariffs To Drop 0.5% in March.
Not so surprising. French gas tariffs are now calculated on a monthly basis since Jan 2013. I also want to flag that supply costs for GDFZY depend on three main factors: oil prices, market price of natural gas and exchange rates.
http://bit.ly/Xy8hgN
The ex-dividend date is set for April 25, 2013.
GDF Suez release its FY results:
-Sales rose 7% to €97 billion ($126 billion) - beat consensus
-EBITDA +3% to €17 billion ($22 billion), strong contribution of gas and LNG business above all in Asia
-Net profit fell to €1.6 billion ($2.10 billion)from 4 billion, mainly due to 2 billion euros worth of post-tax impairment losses on assets in Europe.
-Dividends confirmed at €1.50 => dividend yield around 10%
-Net income between €3.1 and €3.5 billion ($4-4.6 billion) for 2013 and 2014. Management expects a rebound in 2015
Globally not surprising results, roughly in line with consensus. Guidance confirmed by the management but I am waiting for more details. I will try to release my article as soon as possible.
GDF Suez rose 1% in Paris at 11h00 GMT
For me, GDF Suez is clearly a viable long term investment as the company is developing its operations in fast-growing markets (Europe still represents 80% of its business). People say the dividend is the main argument to hold the stock. I would say it is a good argument given the current tough economic and regulatory climate. It enables to keep its investors.
However, as I pointed out in this article, the company should give up the dividend policy in the coming years.The pay-out ratio is close to 100% and for me it is not sustainable. GDF Suez does not optimize its cash by using asset disposals and debt to pay dividends !
I am wondering about the management position as EDF surprised by increasing its dividends. I do no think GDF is able to raise dividends given its financial position. Stop paying dividends this year is very unlikely since its two largest shareholders, Groupe Bruxelles Lambert, the holding company of the Belgian businessman Albert Frère ( 5.2%) and the French State (36%) need cash.
EDF, one of the main competitor in Europe, reported its earnings this week, globally in line with consensus but surprised with an increase in dividends:
- Sales +5.8% to €72.7 billion ($95 billion)
- EBITDA +7,7% to €16,1 billion ($21 billion)
- Net profit +5.3% to €3.3 billion ($4 billion)
- Dividends rose to €1.25 vs €1.15 last year (current dividend yield around 8%)
- Net debt to EBITDA of 2.4x
- investments of €12 billion ($16 billion) for 2013
In full-year 2013, the Group aims to deliver EBITDA between 0% and 3% organic growth.
Dear all,
GDF Suez will release its FY2012 results on Feb 28. So I will revise my TP.
Given the recent news flow, a downward revision is likely to happen. For the moment I am waiting for the 2012 full year results and more guidance from the company. I played with figures and tried a conservative investment case. I computed a TP of $23 (with EUR1=USD1,34).
Main concern about possible regulatory measures for utilities sector due to the deterioration of the macroeconomic environment. Above all, measures that would weight upon margins.
I wanted to say bad news of course. GBL seems to cast a doubt about the company growth potential. I apologize for the slip of tongue. Actually yes it is a good news for GBL with a premium on GDF Suez shares above all if the stock price continues to drop
Hi Veritas !
The stock retreated a little as rumors about difficulties of the company to decrease its net debt. GDF Suez has scrapped the sale of a stake in its German gas storage unit, as bids came in too low. The French utility relied on the sale to reduce its net debt by 500 million euros ($665 million).
$20 is a strong support and I do no expect this support to be broken on short-term.
Good news today with the Belgian holding company GBL that will cash in almost half of its stake in GDF Suez via 1 billion euros ($1.33 billion) of exchangeable bonds. The sale represents 2.3 % of the French group's share capital. Share price advanced in Paris.
French military action in Mali has no impact on the share price because the group has limited activity in the country. I will carry out a new analysis on GDf Suez after the company's earnings report on Feb. 9.
Investor day with a downgrade of net income forecasts. New article is coming.
I do not see it as a negative point for Gdf Suez and Markets did not pay really attention to it. 1% is a limited amount and I do no think the French State wants to pull out from GDFZY. It is too strategic too pull out from this company. It is also a source of income with recurrent dividends.
Last days, the stock has been positively influenced by an upgrade recommendation from Credit Suisse.
The French State is willing to sell 1% of Gdf Suez (GDFZY.PK) for €400 million ($518 million) to finance a possible nationalization of ArcelorMittal's site in Florange
Thank you for your question.
Archos is going to launch a new tablet called "FamilyPad" in December. The FamilyPad has a storage of 8 GB of flash memory, expandable up to 32GB via micro SD card. It is under the operating system Android 4.0 (Ice Cream Sandwich). It has an ARM Cortex A8 CPU @ 1 GHz and 1 GB RAM. It is equipped with two cameras 2.0 MP (1600x1200), one front and one rear.
Its seems that the market appreciates this piece of news. However, we must be careful about Archos because the company issued a warning on its gross margin and has reported huge losses.
Protests in Spain are more likely to happen than in France because the economic situation is more critical. Austerity measures are more constraining than in France. The austerity measures include cuts in public budgets as well as in regional health and education, increased taxes such as VAT. Spaniards will have to tighten their belts !
Moreover, Spain is reluctant to ask for a support from the E.U. Besides, the situation has changed since Germany is in "great danger" of plunging into recession according to four respected think tanks, as they slashed the country's 2013 growth forecasts in half (1% for 2013). We are going to see what will happen on Oct. 18-19 for the European Summit in Brussels.
GDF Suez is looking for diversifying its funding sources. That is why the French Group accessed the US bond market by launching a dual-tranche bond issue with maturities of 5 and 10 years and coupons of 1.625% and 2.875%. This financing has been swapped into Euros at an average spot level of 1.39%.It is the lowest coupons ever achieved by a non-domestic sector utilities in the U.S. market.
The importance of the subscription (more than $8 billion) enabled the Group to raise $1.5 billion (about €1.160 billion), while reducing its borrowing cost by 35 points below base rate initially proposed. As of today, the Group has accessed the debt markets in various currencies including euros, US dollars, Japanese yen, British pounds and Swiss francs.
Furthermore, GDF Suez plans annual cost savings in Europe approaching €750 million ($965 million) in three years. The Group will probably cut its labour force in Belgium all the more so as it is loosing market share in this country.
I still consider GDF Suez as a solid investment especially as a growth value. M.Hollande's tax on dividends could force GDF Suez to decrease the amount of dividend paid out and favor investments. But, I am more worried about the French Government's decision to limit the increase in gas tariffs to only 2%. EBITDA will be impacted and operations in France represent 27% of the 2011 EBITDA.
On short-term, movements are uncertain and it seems hard to predict given the situation in european stock markets. They are hesitant and they waiting for earnings releases for the third quarter. But I do not expect to see GDF Suez trading below $22 unless really bad news from the company or from the Eurozone.
I will publish a new article after the Q3 earnings report.
Thank you for your comment and your interesting questions.
Recently, the stock price has increased and reached $25 (highest level since April). This expansion is more attributable to the upward trend of the market and I believe GDFZY.PK has not make the most of its growth potential. The market is still underestimating the growth potential with a lower P/E than for the sector : 12.5 vs 13.9 (http://bit.ly/MnxXFC). Based on the P/E of the sector, $27-$28 should be a fair price. The market might be disappointed by the development projects led by the Group. More significant projects in emerging markets could be a positive sign for the market. Assuming no substantial change in regulations or in the macro-economic environment, the stock price should not drop significantly.
Concerning Gulf, I need to carry more research. But, Gulf countries have started investing in alternate energy. For instance, Kuwait has announced it will aim for 5% renewable capacity by 2020. Saudi Arabia aims a solar sector capable of providing 30 % of its electricity by 2032.
Actually, Gulf countries seems to favor nuclear power. Thus, the United Arab Emirates will be the first Gulf Arab state to begin building a nuclear power plant. It is a way to save its oil reserves for export rather than using them to generate electricity.
Besides, one of the areas where nuclear energy will be important to these Gulf countries is in nuclear desalination to change salt water to fresh water.
As regards Suez, I would like lead an in-depth analysis whether I can dedicate enough time to this task.
Thanks again Steve,
It is highly probable that the French Government will demand cash dividends in 2013, since it has accepted to receive interim dividends in the form of shares in 2012. Moreover, the French Government needs cash from dividends giving public deficit. Consequently, selling its shares is unlikely to happen and continuing to receive regular dividends is important for the French Govt. Besides, being a main shareholder of the company is also a way to regulate the sector.
Steve,
Now, the French Govt owns 36.4% after GDF Suez has decided to pay a portion of its dividends in stocks in early June (36% before the operation). In my opinion, the French Govt does not plan to shell its shares because the company and the sector are strategic. However, there are growing tensions with the the company. GDF Suez made a formal request to France's energy regulator to have gas prices raised by 4.1% but the French Prime Minister said that gas prices would not rise more than the rate of inflation and that the government was preparing a plan to make gas and electricity more affordable for consumers.
I think that for the French Govt, being a key stakeholder of GDF Suez is also a way to regulate the utility sector.
I am going to keep an eye on Iberdrola and Enel. I will tell you what I think about them as soon as possible.
Hello Guraaf,
As regards Spanish utilities, there is a problem of tariff deficit and the industry is being reformed .There is an interesting note from S&P http://bit.ly/PKmRtd
Thanks for your comment lucky mulloy !
I keep tabs on other French companies such as EDF, Sanofi, CGG Veritas and Manitou BF. I may publish some articles in the next weeks.
Hello Mike,
Thanks for your comment. I am going to work on a DCF valuation for Gdf Suez. I will issue it as soon as possible !
Regards,
Pierre
Hello Veritas1010,
Thank you for your comment. Actually, I think the market would react with the first measures of Mr Hollande. For the moment, Greece is shaking the euro zone. There is an increasing probability that Greece political leaders cancel bailout agreements and Greece would default. Moreover, some analysts expect Greece to exit the euro and the aftermath could be huge. For instance, it would jeopardize the existence of the euro zone. So, stocks should slide until markets are reassured by the euro stability.
Prices should drop on Monday. Good opportunity to buy !
I would be neutral on Societe Generale and on French banking stocks for the next months. The situation in the euro zone is still complicated. Fundamentals are weak and an improvement could be expected at the end of the year. In this context, it would be difficult for the banks to sustain their activities.
Tough days for RIM. Competition in smartphones is harsh and RIM will have to do much more.
Thanks. Interesting article.