Adapting to a new reality

The effect of COVID-19 was immediately felt in the first quarter of 2020 as European P&U companies’ financial results indicate. Revenues fell by ~8 percent in 1Q20 from 4Q19, and most other metrics like TEV/EBITDA valuation and Capex/EBITDA ratio also took a beating. And while one may agree that the COVID-19 pandemic has played havoc in most industries, the European P&U industry has displayed surprising resilience in the second quarter of 2020. Initially, the April data showed a bleak picture: Electricity prices dropped, input prices remained very low, clean spark and dark spreads declined, and the EUROSTOXX utilities index was on a downtrend. However, the months of May and June saw steady recovery in all these indicators as lockdowns eased and demand surged. 

Some of this recovery has also been supported by the dynamics in the renewables segment of the industry as well as regulatory action taken by various European governments including prevention of immediate penalties due to the delays in the implementation of renewable energy plants (Germany) and postponement of the withdrawal of the reduced rate of the domestic consumption tax on energy products (France).

While it may be too early to surmise how the 2Q20 performance of these companies might be – as by the time this report is getting published 2Q20 results are not out yet - early indications and forecasts from analyst reports don’t paint a negative picture. However, the M&A activity in the industry has drastically reduced in 2Q, thanks to a more dedicated focus on maintaining critical infrastructure and finances rather than acquiring new entities, especially when investors will likely be re-evaluating some of the potential deals.

It is expected that the rest of 2020 will witness a partial recovery for most P&U players in Europe as price hedges are in place and companies which have a heavy renewables presence will likely recover faster. Also, with the Green Deal and other similar stimulus measures from the European governments, it is likely that the COVID-19 pandemic will succeed in accelerating the pace of energy transition & decarbonization, with European P&U players at the center of it.

Following report includes:

• Prices & margins: Has the European P&U industry felt the full effects of the pandemic?
• Financial performance: How European P&U companies have performed so far?
• Mergers & acquisitions: Has the pandemic halted the ongoing consolidation?
• Looking forward: A more resilient European P&U industry?