Engie: how much of a descent into stock market hell with RN threat in power?

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Engie plunged vertically on the Paris stock market this week after the European elections (with the advance of extremist parties, including a breakthrough in the National Assembly) and the dissolution of the National Assembly. Stop or still?

© Blondet Eliot/ABACA

– Engie

Since the beginning of the year, Engie has had mixed results on the stock market. After rising nearly 19% in 2023, the stock had a lackluster start to the year, and its decline has been more pronounced in recent days (-8% between June 6 and June 11). Already affected by a disappointing first quarter – with sales 20% below expectations and a nearly 25% year-on-year decline – Engie has been suffering from political uncertainty in France since this week following strong National Rally (RN) results in a European election year, notes Damien Ledda, managing director (CIO) at Galilee AM, in an interview with Capital.

The results of the European Parliament elections in France – and more generally in Europe – brought to the fore a political party less inclined to the development of renewable energy sources, one of Engie’s strengths. “More specifically, newly elected political leaders generally oppose more expensive renewables (wind, solar) in favor of nuclear power (although even here their divergent positions have evolved in recent years).“, emphasizes Damien Ledda. If these positions are not in line with the recent acquisitions of Engie, which bought the Orsted wind farm activities in France, “however, we should note that EBITDA including nuclear fell less in the first quarter (-0.7%) than EBITDA excluding nuclear (-1.2%)», notes the expert.

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Energy: unrealistic RN proposals

Engie, which is suffering from low gas prices, could face additional taxes

Engie is also suffering from the return of rumors linked to taxation of super profits in France. A topic that has been debated in the National Assembly for several weeks, “can cost the energy giant up to 250 million euros per year“, calculates Damien Ledda. While the issue will remain unresolved until a new majority is elected, such a measure would add to the negative impact of low commodity prices. “Prices well below the levels of previous years: the price of MWh of natural gas is trading around USD 3 today, which is two to three times lower than in 2022», emphasizes the manager.

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Engie, relatively heavily indebted, is suffering from fears of rising rates in France

Finally, although the impact is more visible in the banking sector, the political uncertainty of recent days has led to an increase in the cost of debt in France (the 10-year rate has jumped). This situation weighs on Engie, whose net financial debt is 2.9 times its gross operating surplus (which is traditionally considered to be quite high debt). “Finally, after a first quarter that weighed on shareholder morale, Engie has suffered in recent days from fears of a drop in investment in the renewable energy sector, uncertainties about tax developments and, to a lesser extent, interest rate developments.» summarizes Galilee AM.

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Stock market: what to do after the dissolution of the National Assembly and the European elections?

Engie shares are cheap, both relative to the competition and historically

In terms of stock market valuations, however, Engie currently appears relatively discounted in the eyes of Galilee AM compared to its European peers (at around a 20% discount). Additionally, Engie’s enterprise value (cumulative stock market value and net financial debt) now stands at nearly 4.9 gross operating surplus, compared to a historical average of 5.5. “The discount to valuation ratios based on operating results and earnings per share is even greater. In summary, given the potential gradual reversion to the mean over the next 12 months, a price target of €17 seems appropriate to us.», shows Damien Ledda. A target much higher than current price levels (less than 14 euros, at the time of writing).

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Readers of Momentum, Capital’s daily premium stock market investment letter, have been able to make numerous gains on Engie shares (often bought at a very good price). timing), In last years. Find our deciphering, analysis and scenarios every day on the CAC 40 and listed stocks at Momentum. And take advantage of the last days of our flash sale for the price of our annual subscription. To take advantage of it, simply click on the link embedded above in this article. Also discover Chartist figures of technical analysis (Winning the Stock Market with Continuation and Reversal Data), my new book on investing in the markets, one of best sellers your category.

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