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What price political uncertainty? Look no further than EDF, the big French utility which is 84-per-cent government-owned. Its shares trade on a forward earnings multiple of under 10 times, compared with a European utility sector average of 12. Yet they carry an attractive 7.5 per cent yield and, on the trading front, the news is benign.
Hours ahead of the May Day break, EDF reported near-5-per-cent organic growth in first-quarter revenue to €23.4-billion ($31-billion), helped by weather patterns in France and the U.K. It also reconfirmed 2013 full-year targets, including an underlying improvement of up to 3 per cent in earnings before interest, tax, depreciation and amortization.
That, though, pales alongside the political uncertainties. The biggest, and potentially most far-reaching, is the continuing review of energy policy that was instigated by the new Hollande government last autumn. Should this lead to a strategy that is less reliant on nuclear power (currently 78 per cent of France's electricity mix), there would be big implications for EDF, the world's leading nuclear plant operator.
On top of that is the narrower and more immediate issue of tariffs, again notably in EDF's home market (which accounts for 60 per cent of EBITDA and where most of its power is sold at regulated rates). Here, in a recessionary climate, the sensitivities are economic. That said, France's retail tariffs have fallen over the past decade in real terms and pricing is at the lower end of the European spectrum. Many estimates are now pencilling in a rise of about 2 per cent when rates change this summer.
There are also some financial issues: Net debt in 2012 exceeded 2.5 times EBITDA. But EDF has hinted at longer depreciation of its nuclear assets, which would benefit earnings. The shares, meanwhile, sparked into life in January, surging 20 per cent since. But the future dynamique remains in the politicians' hands.