E.ON Boosts Investment Plan to €42 Billion, Targets Grid Modernization

The announcement led to a notable surge in E.ON's shares, climbing 5.4% to reach their highest in nearly six weeks.

E.ON, a leading energy network operator in Europe, has announced a significant increase in its investment plan, raising the target by 27% to 42 billion euros ($46 billion) over the next five years.

This move comes as Europe faces a critical need for modernizing its energy grids to accommodate a massive integration of renewable energy sources like wind turbines and solar panels, moving away from traditional fossil fuels.

The company, which serves approximately 47 million customers across Europe, sees this as an essential step to ensure the stability and efficiency of the energy system during this transition.

The announcement led to a notable surge in E.ON’s shares, climbing 5.4% to reach their highest in nearly six weeks.

This positive market reaction is largely attributed to the company’s profit outlook for 2024 and 2028, which exceeded analysts’ expectations.

Moreover, E.ON’s attractive 4.32% dividend yield, the highest among Germany’s listed energy firms, has drawn significant investor interest.

Barclays analysts highlighted, “E.ON will be a major beneficiary of the current strong operating environment. In our view today’s medium-term outlook will be a major re-rating catalyst.”

The increased investment budget, now standing at 42 billion euros for the period 2024-2028, marks a substantial rise from the previously allocated 33 billion euros for 2023-2027. E.ON anticipates this will elevate its adjusted core profit (EBITDA) to 11 billion euros by 2028.

Although E.ON’s planned annual capital expenditure of 8.4 billion euros is ambitious within Germany, it still trails behind European giants Iberdrola and Enel, with yearly spending targets of 15.7 billion and 11.9 billion euros, respectively.

This expansion in grid investment reflects a broader trend among European energy companies to adapt to the increasing shift towards decentralized renewable energy sources.

E.ON’s CFO, Marc Spieker, emphasized the extensive renewable facility expansion plans across Europe, necessitating enhanced and accelerated investment in grid infrastructure.

CEO Leonhard Birnbaum even suggested that investments might exceed the 42-billion-euro mark, contingent on a regulatory environment conducive to fair returns on network investments.

Looking ahead to 2024, E.ON anticipates a slight dip in adjusted EBITDA to between 8.8 and 9.0 billion euros, down from 9.4 billion the previous year, attributed to one-off factors in its retail energy division.

However, this forecast remains above the 8.6 billion euro average estimate from a company-provided poll.

Additionally, E.ON plans to raise its dividend to 0.53 euros per share for 2023, up from the previous year’s 0.51 euros, aligning with the LSEG estimate.