* Eike Batista's financial woes blight prospects
* Eneva shares down 77 percent since January 2012
* Follows E.ON's investment writedowns on European expansion
By Christoph Steitz
FRANKFURT, Dec 18 Faced with radical green
policies at home, German energy utility E.ON has
turned to foreign markets again, but with its past mishaps
abroad still fresh in the memory investors worry that its latest
$1.3 billion investment in Brazil could prove at best ill-timed.
"You have to be careful not to get carried away by foreign
markets," said Ingo Becker, European head of utility research at
"Thinking that the grass is greener somewhere else is not
always a meaningful way of looking at things."
Six years ago it was a push into southern Europe which ended
in grief for Chief Executive Johannes Teyssen's predecessor Wulf
Having lost out to Spain's Acciona and Italy's Enel
in the takeover battle for Spanish utility Endesa
in 2007, Bernotat went on a 11.5 billion-euro ($15.8
billion) acquisition spree, buying 12,200 megawatts (MW) of
generation capacity, mainly in Spain, Italy and France.
That expansion back-fired with the credit crunch and ensuing
sovereign debt crisis in Europe, forcing the company to book
nearly 6 billion euros in writedowns as an expected surge in
energy demand failed to materialise.
Looking for growth elsewhere instead, E.ON last year paid
850 million Brazilian reais ($366 million) for a 10 percent
stake in power company MPX Energia, only to see the business
empire of its newfound partner Eike Batista start to crumble and
the economy to slow.
It then raised its stake in MPX to 37.9 percent as a result
of Batista's economic woes, pumping in another 2.1 billion reais
and renaming the company Eneva to distance it from
the Brazilian tycoon, whose stake has been reduced to 24
Since January 2012, the month E.ON announced it's move on
MPX, shares in Eneva have plunged 77 percent to 2.8 reais, while
E.ON's shares are down 21 percent at 13.11 euros. In turn, the
Stoxx 600 Europe utilities sector index is up 3 percent.
"It was probably too late for E.ON to enter Brazil. Now the
business there is giving them a lot of headaches," said David
Duchi, an analyst at Belgium's KBC Asset Management, which holds
0.13 percent of E.ON's shares.
Following years of exuberant growth, Brazil's economy
contracted in the third quarter for the first time since early
2009 as a steep drop in investment showed flagging confidence in
what was one of the world's most attractive emerging markets.
While not breaking out results on Brazil, E.ON reported a
loss at the EBITDA level in the first nine months of this year
of 81 million euros for what it calls 'other non-EU countries',
which groups its interests in Brazil and Turkey.
Including majority-owned power generator E.ON Russia
, E.ON's non-European markets division as a whole
accounts for about 6 percent of group EBITDA. In comparison
non-European markets account for 25 percent of EBITDA at rival
GDF Suez and about 43 percent at Iberdrola.
Asked to comment, E.ON said in an emailed statement, "the
company continues to see Brazil as a highly interesting market
where significant economic growth and increasing demand for
energy can be expected."
SCOPE FOR TURNAROUND
But analysts said the outlook was still too uncertain to
judge whether or when E.ON might be able to make a worthwhile
return on its investment in Eneva.
"The decisive point is how long it will take E.ON's
investment to generate profits. If you put earnings forecasts
against their investment, it's clear it'll take a long time
until the group will have earned it back," said one top-rated
industry analyst, who declined to be named.
In the first nine months of 2013 Eneva made a loss at the
EBITDA level of 165 million reais and a net loss of 662 million
reais, mainly due to delays in getting new plants running.
"Eneva suffered from a poor operational performance leading
to the need to buy expensive power on the market to honour
contracts," HSBC analysts said, but adding that most of the
operational problems appear to have been solved.
As a result analysts expect the company, which operates
2,400 MW of installed capacity with a further 524 MW under
construction, to make a net loss in the full year of 666 million
reais, followed by a profit of 156 million reais next year and
280 million reais in 2015, according to Thomson Reuters
They also expect Eneva's return on equity (ROE) to be a
negative -2.5 percent this year but to climb to 1.5 percent next
year and 7.4 percent in 2015, according to StarMine.
Meanwhile Goldman Sachs expects Eneva's cash return on
capital invested (CROCI) to build up from 0.4 pct in 2013 to
10.8 pct in 2014 and 11.1 pct in 2015.
"We believe the level of visibility of the company's
recurring EBITDA and free cash flow should improve in the next
12-months," the bank said in a note published in September.
($1=2.3204 Brazilian reais)
(Additional reporting by Geert De Clercq in Paris; Editing by