For Gaz de France it is the best of times and the worst of times. Europe's biggest utility privatisation since 1999 should be an easy sell, but is not.
The clue is in the name. GdF's flotation faces domestic hostility, although strikes have been postponed until after the summer. Still, the government's retained stake of 80 per cent will be the largest by far of any listed utility in Europe.
Strategically, Gaz de France is playing catch-up. That is not all bad: unlike others, it has historically been cautious on foreign expansion. That will change. After the capital increase of €1.6bn, GdF could borrow up to €6.2bn before it threatened the 35 per cent ratio of funds from operations to net debt necessary to maintain its AA- credit rating. The scarcity of available upstream gas and electricity assets makes expansion expensive.
That said, utility stocks are in favour and GdF will be unique as a fully integrated listed gas company. And it is not alone on acquisition risk: Enel and Eon spring to mind. The valuation mid-point implies an enterprise value to earnings before interest, tax, depreciation and amortisation multiple for 2005 of six times.
Given that GdF has much to prove, that 25 per cent discount to the sector looks fair. Investors can also draw comfort from the simple fact that GdF is not Electricité de France. That privatisation, due in October and burdened by EDF's acquisitive history and higher public profile, will really have France's unions manning the barricades.
(FT.com)