E.On Sets 2023 Guidance Above Expectations; Raises Its Investments Through 2027

We plan to tweak upward our EUR 9.40 fair value estimate after no-moat E.On EOAN released final 2022 results, set 2023 guidance above our estimates and FactSet consensus, and rolled over its five-year business plan on March 15. The latter includes a step-up in network investments for a limited bottom-line accretion due to higher depreciation and interest rates. The company extends to 2027 its guidance of growing the dividend annually by up to 5%. This is the longest-duration dividend growth commitment among European utilities we cover. The dividend on 2022 earnings will amount to EUR 0.51, 5% above the year before and implying a 4.9% yield.

E.On sets 2023 adjusted net income guidance in a EUR 2.3 billion-EUR 2.5 billion range. The midpoint is 11% below 2022 net income, but 4.5% above FactSet consensus and well above our EUR 1.8 billion estimate. The material upside to our estimate is driven by all businesses. Networks’ profitability should be higher than our estimate due to higher investments and higher earnings than we expected in 2022. Customer solutions’ profitability should also land above our expectations after a stronger 2022 than we expected thanks to repricing.

E.On guides for core 2027 EBITDA of around EUR 9 billion, implying 5.2% average annual growth. Taking the latter implies 2026 core EBITDA of EUR 8.55 billion, 10% above the previous plan. On the other hand, the firm guides for 2027 adjusted net income of EUR 2.5 billion implying 5.2% CAGR and 2026 adjusted net income of EUR 2.38 billion, in line with the previous target of EUR 2.35 billion and 7% above our EUR 2.23 billion estimate. All in all, the increase in the EBITDA target versus the previous plan is almost fully offset by higher depreciation due to higher investments and higher interest rates.

E.On plans to invest EUR 33 billion over 2023-27 or EUR 6.6 billion annually, 22% above the previous plan. The increase is essentially driven by networks, which will account for 79% of investments.