Uniper (UNPRF) towards nationalization | Looking for Alpha

Over the past few months, we have closely followed the evolution of European gas and its involvement in many companies. In particular, we focused our analysis on Uniper (OTCPK:UNPRF) and Fortum Oyj (OTCPK:FOJCF). We were not surprised to read this the German government takes a majority stake in Uniper. In our previous analysis, we reported some remarks by the Minister of the Economy Robert Habeck and the German Chancellor Olaf Scholz which said respectively: “wWe will not allow a company of this magnitude to become insolvent and cause turmoil in global energy markets.” and “Uniper is crucial for the German economy“. These comments more than justified a possible revival.

Gas Sensitivity Analysis

During our hedging initiation, we concluded that with a gas price of €130 per MWh, Uniper was in deficit by almost €1.5 billion on a monthly basis. The gas spot price is now €190 per MWh.

In our second follow-up, we highlighted how the financial package was first aid support for the energy company, but it didn’t solve Uniper’s cash burn trend.

What happened?

The reopening of the Nord Stream 1 pipeline that was scheduled for September 3 is still not in place. Also, there is no timeline for a reboot. Gazprom has discovered an oil leak and maintenance work is needed. It’s just an excuse to take advantage of better terms in the Ukraine conflict, but once Moscow cut off its supplies, Uniper was forced to find gas elsewhere for its end customers, thereby paying gas prices to the counting and burning money. Indeed, in fixed-term contracts, higher expenses cannot be automatically passed on to customers. Moreover, this situation represents a serious problem for all energy companies operating in the futures market.

In order to be able to operate on the derivatives market on the stock exchange, it is mandatory to pay a margin, that is to say an initial guarantee. Electricity and gas futures margins are currently very high and equal to around 20% of the value. These margins are also updated daily, depending on the evolution of the contract price: if it increases, the clearing house must be fed with additional sums in order to contain the structural damage in the event of insolvency. These margins have increased significantly, and some governments have granted lines of credit to guarantee liquidity to companies in difficulty.

Conclusion and evaluation

Last week, Germany’s third-largest gas import group called Vng was forced to call for help. Similar problems now arise in many European countries. However, the European Commission’s support program does not introduce cash support for companies affected by the current energy crisis. Regarding Uniper, the German government has already obtained 30% of its capital. There is now talk of a true nationalization, with the German government taking its stake above 50% and beyond. This follows the recent nationalization of the EPD. Uniper confirmed discussions are ongoing. The title simply collapsed and we remain neutral.

Mare Evidence Lab sector coverage:

1. Engie: Great progress but uncertain times ahead
2. Fortum Oyj: a clear starting point