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The Power Of France

15 February 2019 by jbchevrel

First of all, this isn’t about rugby. EDF released an encouraging set of 2018 results, with EBITDA +11% to €15B. Although low beta, the CDS was tightened 30bp YTD. From 80bp to 50bp. This €15B EBITDA was top of their target range. The main driver was France’s power supply. This division’s EBITDA soared c20%, to >€6B. And in the same time, net debt was stable-ish at €33B (€2B disposals vs €3B investments). Thus, leverage has improved to 2.2x from 2.4x, the year before. The trading range of this low-beta 50bp-paying CDS over the past 3 years has been [40bp,140bp]. And there are reasons to think it will stay in the lower part of that range, this year. Indeed, 2019 guidance for EBITDA is €15.3-16B. And it looks conservative, as it accounts for the fact that current French tariff freezes might impact EBITDA adversely. The dividend payout ratio was maintained <50%. The French government (>80% stake) is committed to keep its scrip option until 2020. To preserve credit rating is also something management is committed on. So it looks like EDF will remain a boring if not tragic equity story (the stock has lost >80% of its value since its pre-GFC peak), but on the credit side, things look good for this A-/A-/A3 utility.