Veolia Sets 2023 Guidance in Line With Expectations, Confirms 2024 Guidance; Shares Fairly Valued

We don’t expect to materially change our EUR 30.5 fair value estimate after Veolia VIE released 2022 results above consensus it polled for the bottom line, set 2023 guidance in line with consensus, and confirmed its 2024 target. The group will pay a dividend of EUR 1.12 on 2022 results, 12% higher than the previous one and implying a 4% yield. Shares are in 3-star territory.

2022 EBITDA grew 7.2% organically to EUR 6.2 billion, in line with our and consensus expectations. In the fourth quarter, organic growth was 13.7%, sharply accelerating from 4.6% in the third quarter. The fourth quarter was boosted by a material positive impact from high electricity prices thanks to an optimization of the electric output. During the year, the main positive driver was cost-cutting, which amounted to EUR 0.37 billion, above the EUR 0.35 billion target. Synergies from the Suez integration amounted to EUR 0.15 billion, well above the EUR 100 million target.

For 2023, Veolia targets an organic EBITDA growth of 5%-7% implying an EBITDA of EUR 6.57 billion by taking the midpoint, above our EUR 6.48 billion and consensus’ EUR 6.53 billion. Key growth drivers will be strong organic revenue growth, EUR 0.35 billion of cost-cutting, above our EUR 0.25 billion estimate, and EUR 130 million of additional synergies from the Suez integration, roughly in line with our estimate. The group guides for a 2023 current net income of EUR 1.3 billion, in line with the consensus but above our EUR 1.18 billion. Raising our cost-cutting estimate in line with the group’s guidance will bring us close to the net income target. The related positive valuation impact will be mitigated by a net debt above our estimates in 2022 on a comparable basis.

Veolia confirms its target of 40% EPS accretion between 2021 and 2024. Accordingly, the group maintains its target of EUR 0.5 billion of cumulative synergies from the Suez integration.