Vattenfall AB

The stable outlook reflects our assumption that Vattenfall's significant investments in low-risk electricity distribution and district heating networks, and its growing portfolio of wind farms, will translate into solid earnings growth. This should enable the group to maintain a financial risk profile in line with our expectations for the rating. The company's flexibility in making dividend payouts may mitigate any potential operating underperformance. Given the group's significant share of stable cash flows from electricity distribution and district heating, we consider an FFO-to-debt ratio of above 20% appropriate for the rating. We could lower the rating if we considered that Vattenfall's position in the power generation business was weakening; for example, if power prices deteriorate or if the planned expansion of

...We expect a stronger performance from merchant power generation activities. Average Nord Pool power prices were about 22% higher in first-quarter 2019 at about 47 per megawatt hour (/MWh) compared with 39/MWh in 2018. Vattenfall did not capture the full price increase during 2018 because of previous hedging contracts signed at low levels, but we expect it will achieve additional earnings from higher prices in 2019 and 2020. Higher prices, the removal of nuclear tax, and higher output from hydro and nuclear will support improvement in credit metrics. Significant investment efforts in renewables will boost EBITDA over the next two years. We expect the offshore wind farm Horns Rev 3 to be fully commissioned during 2019, with a capacity of 407 MW. In 2019 and 2020, Vattenfall's capex program amounts to Swedish krona (SEK) 56 billion, about SEK32 billion of which is dedicated to growth investments, mainly into wind generation, in line with the group's climate-neutral strategy. We see higher...

Full Report