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EDF share price forecast: What’s next for the stock after nationalisation?

By Fitri Wulandari

Edited by Jekaterina Drozdovica

09:57, 12 July 2022

EDF share price forecast: What’s next for the stock after nationalisation?
Low angle view of the EDF (Electricité de France) sign at the entrance of the nuclear power plant of Nogent-sur-Seine and the two cooling towers. Photo: olrat / Shutterstock.com

The share price of Électricité de France SA (EDF) surged 14% on 6 July after Prime Minister Elisabeth Borne mooted the proposed nationalisation of the France-based electricity producer. 

At the time of writing (11 July), the stock is trading at €9.64 a share and has delivered a weekly gain of 12.56%, although it is still down more than 2% this year.

The company is carrying a huge debt load and needs to revitalise its aging nuclear power plants. Is nationalising EDF the answer to revamping this energy producer?

Here we take a look at why nationalisation was proposed, EDF’s latest performance and other factors that shape Électricité de France’s stock forecast.

What is EDF?

Électricité de France S.A. (EDF) was established on 8 April 1946 after the nationalisation and merger of France’s electricity and gas sectors. Since then, the Paris-headquartered company has led growth and development in the country’s energy sector.

With financial aid from the US under the Marshall Plan, France started a series of major projects in the 1950s that provided 36% of EDF investment between 1948 to 1952. During the 1973 oil crisis, the company played a key role in pushing France’s energy independence through nuclear energy. 

In 1992, EDF made its first international investment with a project in South America. In the following years, the company expanded its investment in Europe, starting with the UK in 200. In 2005, the company went public following the deregulation of the country’s electricity market in 2004. 

By 2021, EDF was the sixth largest electricity company in Europe by market capitalisation, according to S&P Global Market Intelligence. In France, the company dominates the power sector, supplying more than 70% of French residential customers, data from the International Energy Agency (IEA) showed. 

As of the first quarter of 2022, EDF had a total installed capacity of 122.4 Gigawatts (GW), including installed capacity in associates and joint ventures. 

The company has a 50% stake in Coentreprise de Transport d’Electricité (CTE), which manages RTE that manages 105,000 km of high and ultra-high-voltage transmission lines spanning around Europe and 50 interconnections with neighbouring European countries. 

EDF also owns Enedis, a public electricity distribution network covering 95% of France. 

EDF sources most of its power from nuclear energy. In the first quarter of 2022, nuclear accounted for 77% of the group’s total 135.3 terawatt/hour (TWh) electricity output. It has 56 nuclear reactors in France and 15 in the UK, as well as several third-generation reactors (EPR) overseas, including two in China.  

Hydropower and gas accounted for 8% each, renewables contributed 5%, while fuel oil and coal accounted for 1% each.

EDF nationalisation: Why is it happening?

Is EDF nationalised? France’s Prime Minister Elisabeth Borne spoke of the government’s intention to hold a 100% stake of EDF in her first speech at the National Assembly on 6 July. While Borne did not give details on the proposed EDF nationalisation, the idea wasn’t new. 

In 2019, President Emmanuel Macron proposed ‘Project Hercules’ to restructure the debt-laden energy company. Under the initiative, the utility behemoth was to be split into three entities: EDF Blue for nuclear power business; EDF Green, a listed company for production of renewable energy and power grids; and EDF Azure for hydroelectric activities. 

But Macron backed away from the project last year following criticism from French lawmakers and labor unions.

The proposed nationalisation of EDF comes at a time when the utility giant is battling huge debts while in need of funding to maintain its existing plants and build new ones. 

France's government wants to boost its nuclear capacity, with Macron saying the country plans to build six new reactors in the coming decade to meet its carbon neutrality target by 2050. France generates about 67% of its electricity from nuclear power plants, resulting in 80% of the country’s electricity output being carbon free, according to IEA

As of 2021, EDF’s net financial debt stood at €42.9bn, up from €42.39bn in 2020, according to EDF’s financial report. In its 2023 guidance, the company said it aims to keep net debt to EBITDA at around three times.

The debt was partly caused by a regulated tariff system called Arenh (Accès régulé à l'électricité nucléaire historique), which orders EDF to sell up to 100 terawatt/hours (TWh) of nuclear generation to its competitors at a fixed price of €42 megawatt/hours (MWh), well below the market price. The regulation has been in place since 2011. 

Meanwhile, the French baseload 2023 contract for the price of electricity settled at €460/MWh on 8 July, according to European Energy Exchange (EEX) data. The price closed at €922.50/MWh for the fourth quarter of 2022.

How could nationalisation of EDF affect shareholders?

Based on EDF Group data, the French government owns a 83.76% stake in the company, institutional and individual shareholders hold a 15.12% stake, employees own a 1.08% stake, and 0.04% are Treasury Shares.

The French government planned to spend around €10bn to buy out minority shareholders in EDF as part of the proposed restructuring plan, according to a Reuters report published on 7 April. 

In the announcement, Borne did not specify whether the government wants to buy out minority shareholders to delist the company or use other measures. 

In the first-quarter earnings briefing published on 4 May, Xavier Girre, EDF seniorexecutive vice president said there are two potential ways of nationalisation in France, either by law, as it was done 40 years ago, or via public offer. 

“As regards the potential reorganisation of the Group, it is also of course too early to tell,” Girre said.  

First-quarter earnings: Surging sales, lower power output

In the first quarter of 2022, EDF reported that total group sales surged to €35.58bn, up 61%  from €21.94bn in the first quarter of 2021, supported by high electricity and gas prices.

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The first-quarter electricity output, however, dropped to 135.4 TWh, from 146.2TWh in the same period last year, due to a drop in nuclear output in France caused by lower availability of the nuclear fleet. Stress corrosion partly caused reduction in the nuclear’s availability in France. 

Previously, the company had issued a profit-warning in March amid soaring petroleum prices. 

EDF stock price analysis: Technical view

EDF share price has been on a downward trajectory since early this year, hit by a slew of headwinds. From downward revision to its nuclear output to power price cap and the latest one with the government’s plan to nationalise the company. 

The stock fell 17% to €8.45 when on 14 January the French government ordered EDF to limit electricity bill hikes to 4% this year to protect consumers from rising energy costs. The new policy came as power suppliers across Europe were battling sky high energy costs.

At the time, the company estimated that the new measures would cost its 2022 EBITDA €8.4bn, later revised to €10.2bn in March.

The stock continued to fall, hitting a 52-week low of €6.64 on 7 March amid reports that the EU considered steps to reduce its dependence on Russian gas, which supplies 40% of the block’s gas imports, as part of sanctions against Russia’s invasion of Ukraine. 

The news added pressure on the company, which has been forced to shut down several nuclear reactors due to corrosion issues at its ageing nuclear power plants, some of which have been operating for 39 years.

In May, EDF revised its nuclear output estimate for 2022 to 280-300TWh, down from the previous February estimate of 295 to 315TWh. It maintains 2023 nuclear output expectations at 300-330TWh. 

EDF stock price history, 2006 - 2022

Shareholders reacted positively to the proposed nationalisation, with the stock jumping 14.54% to close at €8.98 after Borne’s announcement. 

As of 11 July, however, the stock has fallen 2.23% year-to-date and 10.62% in a year. EDF has lost about 70% of its value since its initial public offering (IPO)

EDF share price forecast: Analyst views

Tancrede Fulop, Morningstar’s senior equity analyst, said that the market had anticipated the planned delisting of EDF.

“The company cannot remain listed due to misalignment of interests between the French state and minority shareholders,” Fulop wrote in a note on 7 July. 
“The French government's aggressive measures to limit tariff increases and the massive short position driven by production outages while market power prices are skyrocketing, dramatically weakened EDF while investment needs remain very high.”

Morningstar gave the lowest “no-moat” rating to EDF stock partly because of its nuclear fleet’s exposure to volatile power prices. In addition, the regulated power tariffs for retail consumers put a ceiling on the company’s earnings because competitors can request higher volumes when power prices rise above ARENH prices. 

The firm also has assigned a very high uncertainty rating for EDF due to regulatory risks. 

“France's ministers may find it more politically expedient to maintain lower costs for end customers than to help EDF's bottom line. Government demands for increased investment in the nuclear fleet may not be reflected in power tariffs,” Fulop said.

The analyst also highlighted the risks of labor-related disruptions, such as the strikes at France’s nuclear plants in 2016. 

“There is also a substantial risk that the French government's strategic priorities will conflict with the interests of common shareholders, potentially driving investment in what the government considers to be strategic projects at lower returns,” added Fulop.

The company could face a high financial risk because as the world’s largest nuclear operator, EDF will have to bear the cost of dismantling and the storage of nuclear waste in the future. At the same time, the current provisions could be too low to fund related works, the analyst said. 

EDF stock price targets & forecasts

As of 11 July, the consensus of 14 analysts compiled by MarketScreener set the price target for the stock at €10.43. The price targets ranged from a high of €16 to a low of €6.50.

The consensus sentiment for the stock by 14 analysts was ‘hold’. Five of the 14 rated it ‘hold’, three ‘buy’, two ‘sell’, one ‘underperform’, two ‘outperform’ and one gave no opinion. 

Four of 12 analysts polled by WSJ Markets recommended the stock as a ‘hold’ and four a ‘buy’. One analyst recommended a ‘sell’, two gave an ‘overweight’ rating and one analyst suggested an ‘underweight’ rating.

The analysts offered a 12-month average price target of €10.51. The high price target was €16 and the low €6.50. 

Algorithm-based forecasting service Wallet Investor was bearish in its EDF share price forecast, and suggested the stock was a bad long-term investment. 

In its EDF share price forecast for 2022, the site expected the stock to trade at €7.799 by December 2022. Its EDF share price forecast for 2025 suggested that the stock could drop to €6.763 by December 2025 and to €5.614 by July 2027.

When looking for EDF share price predictions, remember that analyst and algorithm-based price targets could be wrong. Forecasts shouldn’t be used as a substitute for your own research.

Always conduct your own due diligence by reviewing the most recent market analysis and stock news. Keep in mind that your decision to trade or invest should be based on your risk tolerance, market expertise, portfolio size, and other personal circumstances. 

Remember that past performance doesn’t guarantee future results. And never invest or trade money that you cannot afford to lose.

FAQs

Is EDF stock a good buy?

Whether the stock is a suitable investment for you will depend on your investing goals and portfolio composition. You should always conduct your research and never invest money that you cannot afford to lose.

Will EDF stock go up or down?

As of 11 July, the consensus of 14 analysts compiled by MarketScreener set the price target for the stock at €10.43. The price targets ranged from a high of €16 and a low of €6.50. Note that analysts’ predictions can be wrong and shouldn’t be used as a substitute to your own research.

Should I invest in EDF stock?

Whether you should invest in EDF depends on your risk tolerance, investing goals and portfolio composition. You should always conduct your own research. And never invest more money than you can afford to lose.

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