E.ON Gains After Raising Profit Outlook on Prices, Acquisitions

By Nicholas Comfort

Aug. 13 (Bloomberg) -- E.ON AG, Germany's biggest utility, climbed the most in a month in Frankfurt trading after raising its full-year profit forecast on higher power prices and acquisitions in Italy, Spain and France.

E.ON added as much as 3.5 percent, the steepest one-day gain since July 7, and traded at 39.75 euros as of 1:05 p.m. local time. Earnings before interest and tax will rise by between 5 and 10 percent compared with 2007 and adjusted net income will increase by the same degree, the Dusseldorf-based company said today in a statement.

``It's a positive surprise,'' said Karin Brinkmann, an analyst at UniCredit Markets & Investment Banking in Munich, who has a ``hold'' rating on the stock. ``The market had been expecting some weaker figures, so it's quite a relief.''

E.ON boosted its generating capacity by 10.7 gigawatts, or about 20 percent, after buying Endesa SA and Enel SpA plants in countries including Spain, where power consumption is expected to grow faster than the European Union average. Higher power prices at E.ON's central European unit more than made up for lower earnings in the U.K. in the second quarter.

The company reported a 2.1 percent drop in second-quarter profit because of losses from derivatives hedging and as book gains were lower than a year ago. Net income fell to 882 million euros ($1.31 billion) from 901 million euros a year earlier, missing the 1.27 billion-euro median estimate of seven analysts surveyed by Bloomberg.

Ahead of Schedule

The acquisition of power assets from Endesa, taken over by Enel and Acciona SA last year, closed ahead of schedule.

Chief Financial Officer Marcus Schenck said in March that the acquisition would be delayed until the third quarter, The utility beat that schedule after completing the 11.5 billion-euro purchase of power plants in Spain and other European companies on June 26.

German electricity for delivery the next day sold for an average of 71.63 euros a megawatt-hour in the second quarter, double its year-earlier level, according to broker GFI Group Inc. Europe's largest power market accounts for 54 percent of E.ON's revenue, Bloomberg data show.

E.ON has fallen 18 percent in Frankfurt trading so far this year, compared with a 22 percent decline for smaller German rival RWE AG. E.ON is covered by 41 analysts, of whom 35 recommend buying the stock, four say ``hold'' and two advise selling.

Gas Demand

RWE may report a 30 percent slide in second-quarter earnings tomorrow, according to a separate Bloomberg survey of analysts, because of higher emissions costs.

German natural gas demand gained 9.5 percent in the first half, outstripping the country's 3 percent overall gain in energy consumption, Berlin-based statistics group Arbeitsgemeinschaft Energiebilanzen said earlier this month.

The average German day-ahead natural gas price in the quarter more than doubled to 26.57 euros from last year, according to energy broker Spectron Group Ltd. That's less than the almost threefold jump to 60.77 pence a therm for U.K. prices, data from broker ICAP show.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net