January 31, 2013 / 1:20 PM / 5 years ago

UPDATE 2-Fortum profit boosted by higher power demand, hedging

* Q4 op. profit 587 mln euros vs 546 mln in poll

* Considers selling distribution unit

* Shares up over 4 pct (Recasts with hedging details, valuation, comments from CEO and analyst)

By Terhi Kinnunen

HELSINKI, Jan 31 (Reuters) - Finnish utility Fortum reported a stronger-than-expected 16 percent rise in quarterly operating profit due to an increase in demand for power and successful hedging of electricity prices.

The company also said it may sell its distribution unit and focus on improving profitability of its power and heating businesses.

Its fourth-quarter comparable operating profit rose to 587 million euros ($796.5 million), up 16 percent from the year-ago quarter and beating the average forecast of 546 million euros in a Reuters poll.

Nordic electricity prices were under pressure for most of 2012 as high water reservoir levels made hydro power cheaper.

But Fortum’s hedging, mostly via forwards on the Nord Pool power exchange, helped push the average power price it obtained in the quarter to 46.8 euros per megawatt-hour from 45.2 euros a year earlier.

“The volatility in Nordic power wholesale electricity prices will continue, therefore hedging will be important,” Fortum Chief Executive Tapio Kuula told a news conference.

The utility has hedged 70 percent of its electricity volumes for 2013 at 45 euros per MWh as it again seeks to counter volatile prices.

Fortum has been trying to improve profitability at a time of weak economic growth, lower power prices and prolonged outages at the Oskarshamn nuclear power plant in Sweden, which it partly owns.

Its shares were 4.5 percent higher at 14.05 euros by 1313 GMT.

The company launched a restructuring programme in October that includes plans to sell around 500 million euros in assets and cut capital spending by 250 million to 350 million euros.

Fortum said it would decide this year whether to sell its distribution business, which owns and operates networks in Finland, Sweden and Norway and has 1.6 million customers.

A sale would help the company by allowing it to focus on its main businesses.

FIM analyst Sanna Kaje said the distribution unit would probably fetch a higher valuation multiple than the multiple for the entire group.

Fortum’s ratio of enterprise value to EBITDA (earnings before interest, taxes and depreciation) is at 8.8, higher than multiples of around 5-6 for rivals such as Germany’s E.ON or Austrian hydro power firm Verbund.

Some analysts say continuing economic uncertainty and slow growth in Europe might dent electricity demand. Political setbacks in EU carbon trading are also raising concerns over Fortum’s outlook.

Fortum forecast demand in the Nordic countries to be roughly flat in the coming years.

It proposed a dividend of 1.00 euro per share for 2012, unchanged from a year earlier. ($1 = 0.7370 euros) (editing by Jane Baird)

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