Financial analysis EDF

Compared all the ratios of three companies, Gazprom realized the best results on each of them and its net profit margin is very high with 26.9%. In comparison, EDF has only 4.61% in net profit margin.

E.ON is currently in a bad time; its net profit is 0%. Its return on equity is negative. Their others ratios are low.

V - Analysis of cash flows

This analysis of cash flow allows knowing the ability of EDF to manage its assets and financial resources in order to generate cash.

On the chart "Cash flow statement", we observe that the Value of Total inflows and Total outflows decreases by twice from 2009 to 2011. This is a negative trend, meaning the ability of the company to generate cash is decreasing, not due to management or operational problems but due to the increasing necessity of the company to invest in new projects and the changes in customers’ demand and in market trends.

Moreover the change in cash is unstable during these last three years:  In 2009 change in cash was very positive, unfortunately the following year the situation was inversed. The view in details of the elements composing total inflows and total outflows through charts "Inflows" and "Outflows" will underline causes of positive or negative operating cash flow.

·         In the chart "Inflows" two data explain the main evolution of the inflow:

- Income before taxes of consolidated was very low in 2010, it represent 6% of the total inflows, compared to other years 2009 and 2011, respectively 11% and 18% of the inflows.

- Issuance of borrowing is the reason of the high value of inflows in 2009, it represented 61% of the inflows. The following years issuance of borrowing was divided by 2.

·         The changes occurred on the total outflows are mainly due to the following outflow:

- Change in working capital was near 2% in 2009 and 2010 and it increased significantly to 7% in 2011

- Change in financial assets is null in 2009 and 2011, it was very high in 2010, 21% of the outflows,

- Purchase of property, plant and equipment has increase by twice from 2009 to 2010 and was stable in 2011

- Repayment of borrowing decrease by twice after 2009

Cash flow statement

6.1 Future of EDF

As we sought in this report, EDF will face many challenges in coming years. In particular because of the highly volatile price of oil and gas and CO2. The other big challenge will be about changes in regulatory policies and environmental in Europe. To finish a other difficult challenge which raises the most questions is about the future of nuclear especially after Fukushima and the problem with EPR.

The strategic vision of EDF is to be the first electrician world reference in the future. To achieve this strategy EDF will have to perform on different sectors. First it will have to continuing industrial performance in France, growth the electricity production and defend its position against of the new entries to the market. Second point will be to continue the internationalisation of the group, in UK with the nuclear new nuild and in Italy with gas. More generally EDF will pursuit the development of renewable energy in Europe, in US/Canada and in Mexico. In emerging countries, EDF can bring all its expertise and its recognized competences to involved development of the world. In spite of that it have to stay focus on the European market share to didn’t scattered.

Even if, we can say that the success or not of EDF will depends of external factor, the biggest challenge of EDF is on the innovation point. Indeed, the electricity market will moving a lot in the next year and the capacity to EDF to adapt this market will be the key of the company success.

6.2 Evolution of the EDF stock

EDF belongs to the industry group «Utilities».

We can see a big decrease in a stock price during last five years, caused to strengthening of GDF position and loss of market share due to it.

Its market capitalization of USD 28 bn. ranks it among large-cap stocks and the fifth in the world, in its group.

During the last 12 months the stock has reached a high of EUR 29.25 and a low of EUR 15.23; A stock's average fluctuations over the last 5 years: the high of EUR 85.79 was reached on November 2007 and the low of EUR 15.23 in April 2012. The negative driving earnings revisions trend is specific to the stock. [3]

The positioning of EDF vs. its reference sector «Utilities» accentuates that the clearly negative trend of earnings revisions is a problem specific to the stock, because its environment is - on the contrary being positively revised.

But in terms of valuation, the stock has good potential.

The fundamental price potential for EDF is good, even if other stocks in the same industry group present an even better valuation. But the main point is that in present time EDF is fundamentally undervalued compared to its theoretical fair price.

6.3 Invest in EDF?

Price of the stock in 24/04/2012 was 15.37 €

In spite of an important debt, due to necessary investment, we can say that the company is still stable.

The investment in EDF seems to be risky, because of negative changes in it’s stock price, loss of market share and strong competitors’ position . Indeed some important projects are crucial for the firm like the EPR. The future of the company will much depend on this.

¤Although the dividend yield is high : 7.55%

The 12-month indicated dividend yield is 7.55%. This estimated dividend represents 53% of the estimated earnings. Consequently, the dividend is covered, but not strongly, and reasonably likely to prove sustainable.

According to financial information provided by EDF, the Group's sales in the first quarter of 2012 totalled €20.8 billion, showing 6.5% organic growth compared to the first quarter of 2011. France contributed to the growth in sales, with 5.1% organic growth, as did the international segment, with 8.7% organic growth.

EDF confirms its financial guidance for profitable growth over the period 2011-2015*, i.e.:

·   EBITDA**: 4 to 6% average annual growth;

·   Net income excluding non-recurring items: 5 to 10% average annual growth;

·   Financial net debt / EBITDA ratio: less than 2.5x

·   Payout ratio: between 55 and 65%

2012 objectives are in line with this financial guidance, with a dividend at least stable compared to the one paid for 2011. As announced in the FY11 results publication, the 2012 French output target is 420-425 TWh. In the UK, EDF Energy aims to improve upon its 55.8 TWh achieved in 2011.[4]

* Excluding the potential impact of Edison PPA

** Growth at constant scope and exchange rate

In conclusion, we can say that EDF is still advantageous company as for traders as for investors, analysts forecast to EDF stable growth during the next few years. But even considering the debt’s amount and unstable position at the moment we would say that EDF is a company with a good perspective, with the government as major shareholder and products’ demand that will only grow.

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