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    FORTUM   FI0009007132

FORTUM OYJ

(FORTUM)
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Fortum's gain from booming power price capped by hedging

11/12/2021 | 02:28am EST
FILE PHOTO: Finnish energy company Fortum sign is seen at their headquarters in Espoo

* Underlying operating profit jumps

* Hedging levels limit profit

HELSINKI, Nov 12 (Reuters) - Finnish energy company Fortum on Friday posted a bigger-than-expected rise in underlying third-quarter operating profit, but extensive hedging limited the windfall from rising energy prices.

Fortum's comparable operating profit rose to 260 million euros ($298 million) from a loss of 179 million a year ago, beating the 203 million expected by analysts in a company-provided poll.

Nordic power prices are highly volatile and the high level of hedging applied by the company's key Generation business, which sells a large portion of its electricity output on forward contracts, acted as a constraint on profits.

While spot prices surged, Generation's achieved third-quarter power price rose only 18%, offset by the hedging designed to lock in predictable revenues for the months ahead.

"The increased gas prices reflect a tight supply-demand balance for the winter, but forward prices indicate gradually normalizing conditions thereafter," Chief Executive Markus Rauramo said in a statement.

For the remainder of the year, the Generation unit has sold around 75% of its output at 34 euros per megawatt hour, only around half the current market level of Nordic front-quarter baseload power.

For 2022, Generation increased its hedging level to 65% from 60% previously, with the price of its contracts averaging 32 euros per megawatt hour, while Nordic front-year power contracts currently trade at close to 40 euros.

"The outlook is slightly weaker in terms of hedging, I would have expected Generation's hedge prices to be raised a bit more," Inderes analyst Juha Kinnunen said, adding that he sees the market remaining favorable for Fortum in the last three months of the year.

Fortum's German subsidiary Uniper a week ago swung to a comparable third-quarter operating profit of 9 million euros from a loss of 310 million last year. The result was hit though by 6.1 billion euros in negative fair value changes in non-hedge derivatives.

Majority owned by the Finnish government, Fortum last December announced a new strategy, saying it aims to divest its retail businesses and become carbon neutral by 2050.

The deadline prompted several environmental organizations to urge the Finnish government to push for a faster exit from coal.

In April 2020, the world's largest asset manager Blackrock which owns 0.97% of Fortum voted against the discharge of the board because of the acquisition of coal-heavy Uniper.

During the third-quarter Fortum completed divesting its Baltic district heating business and a 50% stake at Stockholm Exergi.

Fortum's shares fell 2.8% to 25.62 euros by 1050 GMT. ($1 = 0.8739 euros) (Reporting by Essi Lehto and Boleslaw Lasocki, editing by Terje Solsvik, Elaine Hardcastle)


ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
FORTUM OYJ 0.58% 24.37 Delayed Quote.-10.15%
UNIPER SE 2.66% 40.94 Delayed Quote.-4.74%
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Analyst Recommendations on FORTUM OYJ
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Financials
Sales 2021 71 243 M 79 508 M 79 508 M
Net income 2021 2 310 M 2 578 M 2 578 M
Net Debt 2021 5 188 M 5 790 M 5 790 M
P/E ratio 2021 8,62x
Yield 2021 4,70%
Capitalization 21 541 M 24 305 M 24 040 M
EV / Sales 2021 0,38x
EV / Sales 2022 0,37x
Nbr of Employees 19 452
Free-Float -
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Technical analysis trends FORTUM OYJ
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Mean consensus HOLD
Number of Analysts 18
Last Close Price 24,25 €
Average target price 26,56 €
Spread / Average Target 9,55%
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Managers and Directors
Markus Heikki Erdem Rauramo President & Chief Executive Officer
Bernhard GŘnther Chief Financial Officer
Veli-Matti Reinikkala Chairman
Anja McAlister Deputy Chairman
Essimari Kairisto Independent Director
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