UNPRF - Uniper: Again A No Go

Summary

• Uniper recorded a €40 billion loss in the first nine months.
• The group was the main customer of Russia's Gazprom.
• Ahead of the capital market day, we continue to remain neutral.

On the 19th of December, with an Extraordinary General Meeting 2022, Uniper (UNPRF) will likely request an additional state aid support of €25 billion. This further capital increase will be used to avoid a bailout and will be fully authorized with new shares fully subscribed by the German Government. Here at the Lab, we followed very closely Uniper business evolution in the last few months. Below is our analysis:

1. A Very Complicated Situation . Mare Evidence Lab's initiation of coverage provided a monthly cash burn of more than €1.5 billion per month;
2. Transaction Details Versus Market Expectations , here we emphasized how the German aid support was not sufficient to cover the gas price increases;
3. Uniper Towards Nationalization , we highlighted how the Government had to step in to pay margins for gas and electricity futures.

The latest news confirms Mare Evidence Lab's thoughts. €8 billion in financial aid support were not enough to stabilize the company. Including the new €25 billion and considering the debt injection, the company bailout cost will exceed €50 billion. What happened?

A negative result of this size has rarely been seen in the history of listed companies (here at the Lab, the only comparable is Freddie Mac with a net income of -$50 billion in the 2007/2008 financial crisis). In nine months, Uniper recorded a loss of over €40 billion. The German utility was by far the largest buyer of Russian gas, as well as Gazprom's partner in the construction of the Nord Stream 2 pipeline. Moscow's supply cuts forced Uniper to procure large volumes of gas on the spot market, paying record prices and losing over €100 million a day last summer, when the value of gas soared to over €300 per MWh per day. At the end of October, the losses continued, the company specified, even if at a rate of less than €10 million a day. So far, Uniper avoided insolvency only thanks to the government's intervention; however, the problems are not yet fully resolved.

Aside from the red results, Uniper's net debt reached almost €11 billion. This was due to the negative cash flow from operations due to the Russian gas curtailments as well as its higher working capital requirement due to the higher gas price. We should recall lower provisions for pensions thanks to the rising interest rate environment but is a marginally positive impact on the Uniper debt situation.

Uniper has not yet managed to even divest its assets in Russia, where it has 83.7% of the energy group Unipro. The sale is a priority; however, as released in a note, Uniper management " took all the steps possible to divest. In September, we even signed a deal, but since then, it is still subject to the Russian regulatory authorities with an uncertain outcome" .

We should also report that the German energy company initiated litigation against the Russian group Gazprom. This was announced by Uniper, which claims to have incurred additional costs of €11.6 billion due to gas volumes agreed with Gazprom but never delivered by the Russian group. For its part, the Russian giant has announced a battle : " Gazprom Export does not recognize any breach of contract or the legality of the claims for damages declared by Uniper ".

Conclusion and Valuation

Since the beginning of the year, Uniper has wiped out more than 90% of its capitalization, reducing its value to just €1.3 billion (from €15.3 billion on the 3rd of January). In September, we anticipated that German Government funds may prove to be insufficient, and we were right. Therefore, we continue to remain neutral in consideration of the possible outcome that the company might face.

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