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BUY Electricité de France EDF FP @ EUR 12.30
With 161’000 employees and EUR 71 Billion of revenues, EDF is one of the world’s largest producer and distributor of energy.
One of the very few remaining State-owned Energy producer, EDF has a generating capacity of nearly 560 TWh (primarily from nuclear sources) and provides power to nearly 30 million French customers and over 10 million customers in other countries.
Generation and Supply Activities segment generates more than 35% of total sales. The segment includes EDF’s energy production and sales activities, commodity trading, and other activities.
Its Regulated Activities, which accounts for over 20% of total sales, consists of distribution, and transmission of energy
The UK, Italy, Dalkia and Framatone segments include entities of its subgroups. The segments generate about 35% of sales combined.
EDF operates power plants in Europe, Africa, the Americas, Asia, and the Middle East.
In the UK, EDF’s units include EDF Energy UK Ltd, EDF Energy Holdings Limited and EDF Development Company Ltd. In Italy operations are led by the Edison subgroup, TdE and Edison SpA.
EDF International and the other gas and electricity entities are located in continental Europe, the US, Latin America, and Asia.
EDF’s Generation and Supply provides energy generation and energy sales to industry, local authorities, small businesses and residential consumers. This segment also includes EDF Trading.
Distribution focuses on management of the low and medium-voltage public electricity distribution networks.
Other activities focuses on services and production of equipment and fuel for reactors, energy services (district heating, thermal energy services) for industry and local authorities, and new businesses mainly aimed at boosting electricity generation through cogeneration and renewable energy sources (e.g. wind turbines, photovoltaic panels, etc.).
EDF’s strategy with regards to the fuel cycle, in agreement with the French State, is to process spent fuel and to recycle the separated plutonium in the form of MOX fuel (Mixed OXide of plutonium and uranium). The quantities processed by Orano at the request of EDF, totalling approximately 1,100 tonnes per year, are determined based on the quantity of recyclable plutonium in the reactors that are authorised to load MOX fuel.
Strategic safety spare parts for generation facilities are treated as property, plant and equipment, and depreciated over the residual useful life of the installations. The costs of operations that are necessary for generation assets to remain in service, and are undertaken at the time of scheduled shutdowns, particularly during major inspections, are capitalised and amortised over a period corresponding to the time elapsing between two inspections.
Branching out in Electric Vehicles Charging stations
In early 2020, EDF acquired Pod Point, one of the UK’s largest electric vehicle (EV) charging company. The acquisition is the largest investment of EDF in the EV market in line with its plan to become the leading energy company for electric mobility in France, the UK, Italy and Belgium.
In late 2019, Pivot Power was acquired by EDF. Pivot Power is based in the UK and specializes in battery storage and infrastructure for EV charging. The transaction is in line with EDF’s Electric mobility plan.
EDF subsidiary, EDF renewable, acquired LUXEL Group in the early 2019. LUXEL is an independent solar energy player based in France. The acquisition will contribute to EDF Renewable’s growth in solar energy and will take part to EDF’s Solar Plan, which aims to establish EDF as a leader in photovoltaic energy.
Deregulation and Expansion
EDF has taken full advantage of the European Union deregulation of the energy markets in the 1990s, while remaining the only state-controlled energy quasi-monopoly on the continent
Other members of the EU complained that EDF was trying to play it both ways: It was making aggressive acquisitions in the UK liberalized market (it bought London Electricity in 1999), while resisting a competition-enabling breakup or even allowing a foreign competitor to buy a stake in the French market.
EDF in 2001 expanded its stake in Italy’s Montedison, a conglomerate with substantial energy holdings, by forming a consortium (Italenergia) with Italian automaker Fiat and some Italian banks to wrest control of Montedison from Italian bank MEDIOBANCA. Although the consortium owns 94% of Montedison, EDF has only 2% of voting rights. (Montedison changed its name to Edison in 2002.)
EDF also purchased a 35% interest in German utility Energie Baden-WÜrttemberg in 2001, and it merged its energy services unit with Dalkia, a unit of Vivendi Environnement (now Veolia Environnement), taking a 34% stake in Dalkia (which will eventually be increased to 50%). EDF subsidiary London Electricity agreed to buy $2.4 billion in UK assets from TXU Europe that year, including a 2,000 MW power plant, TXU’s Eastern Electricity distribution unit, and its interest in TXU/EDF joint venture 24seven; the deals were completed in 2001 and 2002.
In 2002 EDF increased its stake in Brazilian utility Light ServiÇos de Eletricidade to 88% by swapping Light’s interest in SÃo Paulo utility Eletropaulo for AES’s 24% interest in Light. Later that year EDF purchased UK electric and gas utility SEEBOARD (1.9 million customers) from US utility AEP in a $2.2 billion deal.
Deregulation of 70% of the French market took effect in July 2004. Between 2000 and 2004, only 30% of the market was deregulated, just more than the percentage required by European Union (EU) rulings.
Expanding its presence and its position as a nuclear power provider in the US, in 2009 EDF unit EDF Development acquired 49.99% of Constellation Energy’s Constellation Energy Nuclear Group, LLC, for $4.5 billion. (However, another joint venture between these two parties aimed at developing new nuclear power plants in the US was terminated in 2010 after strategic disagreements between the principals).
In a move to boost its position as both a major energy and a nuclear power player in Europe, in 2009 EDF acquired British Energy, with its 1.1 million customer accounts, for about $18 billion.
In 2010 EDF signed two new agreements with China National Nuclear Corporation and China Guangdong Nuclear Power Holding Company, solidifying its role as a long term partner in China’s nuclear development program. (The company has worked in China for 25 years).
To help pay down debt to pay for its expansion in 2010 Hong Kong’s Cheung Kong Infrastructure and Hongkong Electric, both controlled by Hong Kong-based billionaire Li Ka-shing, acquired EDF’s three UK distribution UK grids in a deal valued at about $9 billion.
In 2011 EDF sold its 45% stake in German power utility Energie Baden-WÜrttemberg for $6.1 billion.
In 2012 EDF acquired the Italy-based energy group Edison by purchasing Delmi’s entire investment (50%) in Transalpina Di Energia for a total of 784 million. Following this acquisition the Group held 78.96% of the capital and 80.64% of the voting rights in Edison.
Not to be left out in the competitive renewable energy market, EDF is seeking to boost its wind and solar energy output from a few hundred MW in 2008 to 4,000 MW (in 2012) and higher in 2013.
The company is working on a EUR 6 billion Flamanville EPR construction project in France. In early 2013 the civil engineering work was 94% complete, and 39% of the electro-mechanical equipment was in place. Its other projects included French offshore projects at Saint-Nazaire, Courseulles-sur-Mer and FÉcamp.
What’s Next for EDF
France will have more and more difficulties in maintaining the Status control on EDF and resist a break up of its various businesses.
One of the main opportunities of the future may lie in a major re-structuring of the company, extracting considerable value out of the sum of the parts.
After a dip in 2020, due to reduction of industrial consumption following the lockdowns, EDF sales and profits are on a recovery path.
Earning for the 1st quarter of 2021 beat expectations and the company is expected to deliver double digit earnings growth in 2021, 2022 and 2023
Analysts are almost unanimously positive off the stock with an average target price of 15.12, with the best ranked analyst putti g its target price at 17, a 41 % appreciation form current levels
Rarely long term chart are so positive. The stock has been in a 13 years bear market with now a 5-year consolidation and saucer cup configuration, pointing to new secular uptrend to develop on a break of the 14 level and a target at 28.
We have added EDF to our MODEL PORTFOLIO today.
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