21
www.morganmarkets.com Europe Equity Research 18 January 2013 J.P.Morgan Weekly Utilities Wire 21 - 25 January 2013 European Utilities Javier Garrido AC (34-91) 516-1557 [email protected] Edmund Reid (44-20) 7155 6676 [email protected] Vincent de Blic, CFA (44-20) 7155 6623 [email protected] Nathalie F Casali (44-20) 7325-9023 [email protected] Sarah L Laitung, CFA (44-20) 7325-6826 [email protected] J.P. Morgan Securities Ltd. See page 19 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. The Week That Was – The utilities sector was down 1.0% this week while the Stoxx 600 was flat. The best performer was REE on a successful bond issuance and its receipt of a greater than expected capex programme from the Spanish government. The weakest performer was RWE, on concerns surrounding its exposure to weakening power prices, and its limited progress on debt reduction. The Week Ahead – The deadline for UK water companies to respond to the regulator (Ofwat) on proposed licence modifications falls on Wednesday, and we expect the European Parliament Industry and Energy Committee to give its opinion on backloading during the week. Pair Trade Monitor – We maintain our long Gas Natural / short E.ON which is 59.0% in the money and our long United Utilities / short National Grid which is 8.0% in the money. J.P. Morgan latest research – We downgraded RWE to Underweight this week, and also published on the attribution of the Spanish tariff deficit, ENI bond issue which is convertible into Snam stock, and the affect of LV tariff increases in Greece on PPC. All links to published research inside. The Weeks Ahead Mon 21 Tue 22 EVN ex div; €0.42 gross DPS, 3.3% gross yield IBE pays div; €0.14 gross DPS, 3.5% gross yield Wed 23 Deadline for UK water companies to respond to Ofwat licence modifications SSE ex div; 25.2p net DPS; 28p gross DPS; 1.9% gross yield European Parliament Industry & Energy Committee to give opinion on backloading Thu 24 Fri 25 Mon 28 Tue 29 Wed 30 E.ON analyst and investor conference (2013 guidance); United Utilities interim management statement; PNN ex div; 8.76p net DPS; 9.73p gross DPS; 1.5% gross yield Thu 31 Ofwat city briefing; Fortum OYJ FY12 results Fri 1 Source: Company data, J. P. Morgan estimates. Consensus source: Bloomberg. All times are as per London. European Utilities relative performance Source: Bloomberg, J. P. Morgan estimates 80 90 100 110 120 Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Europe Utilities index absolute Europe Utilities relative to Stoxx600

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Page 1: Weekly Utilities 21-25 Jan 2013

www.morganmarkets.com

Europe Equity Research18 January 2013

J.P.Morgan Weekly Utilities Wire21 - 25 January 2013

European Utilities

Javier Garrido AC

(34-91) 516-1557

[email protected]

Edmund Reid

(44-20) 7155 6676

[email protected]

Vincent de Blic, CFA

(44-20) 7155 6623

[email protected]

Nathalie F Casali

(44-20) 7325-9023

[email protected]

Sarah L Laitung, CFA

(44-20) 7325-6826

[email protected]

J.P. Morgan Securities Ltd.

See page 19 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

The Week That Was – The utilities sector was down 1.0% this week while the Stoxx 600 was flat. The best performer was REE on a successful bond issuance and its receipt of a greater than expected capex programme from the Spanish government. The weakest performer was RWE, on concerns surrounding its exposure to weakening power prices, and its limited progress on debt reduction.

The Week Ahead – The deadline for UK water companies to respond to the regulator (Ofwat) on proposed licence modifications falls on Wednesday, and we expect the European Parliament Industry and Energy Committee to give its opinion on backloading during the week.

Pair Trade Monitor – We maintain our long Gas Natural / short E.ONwhich is 59.0% in the money and our long United Utilities / short National Grid which is 8.0% in the money.

J.P. Morgan latest research – We downgraded RWE to Underweightthis week, and also published on the attribution of the Spanish tariff deficit, ENI bond issue which is convertible into Snam stock, and the affect of LV tariff increases in Greece on PPC. All links to published research inside.

The Weeks Ahead

Mon 21Tue 22 EVN ex div; €0.42 gross DPS, 3.3% gross yield

IBE pays div; €0.14 gross DPS, 3.5% gross yieldWed 23 Deadline for UK water companies to respond to Ofwat licence modifications

SSE ex div; 25.2p net DPS; 28p gross DPS; 1.9% gross yieldEuropean Parliament Industry & Energy Committee to give opinion on backloading

Thu 24Fri 25Mon 28Tue 29Wed 30 E.ON analyst and investor conference (2013 guidance);

United Utilities interim management statement;PNN ex div; 8.76p net DPS; 9.73p gross DPS; 1.5% gross yield

Thu 31 Ofwat city briefing;Fortum OYJ FY12 results

Fri 1

Source: Company data, J. P. Morgan estimates. Consensus source: Bloomberg. All times are as per London.

European Utilities relative performance

Source: Bloomberg, J. P. Morgan estimates

80

90

100

110

120

Jan 12

Mar 12

May 12

Jul 12

Sep 12

Nov 12

Europe Utilities index absolute

Europe Utilities relative to Stoxx600

Page 2: Weekly Utilities 21-25 Jan 2013

2

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Table of ContentsSector performance..................................................................3

The week ahead........................................................................6

Pair trades.................................................................................7

Commodities, hydro & wind ....................................................9

Electricity demand monitor ...................................................12

J.P.Morgan latest research....................................................13

Macro, dividends & bonds.....................................................15

Valuation comps.....................................................................16

Please see the relevant research report, some links to which are provided herein, or the most recent company-specific research published by J. P. Morgan for important disclosures, including a discussion of valuation and risks, for any security recommended herein before forming any investment opinion whatsoever. J. P. Morgan research is available at http://www.morganmarkets.com, or you can contact the analysts named below or your J. P. Morgan representative.

Page 3: Weekly Utilities 21-25 Jan 2013

3

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Sector performance

Last week

Source: Bloomberg. Priced at close on 17 January 2013. Total returns are all in Euros

Top 5 last week

REE (+9.6% relative to the European Utilities sector) – In the last week the Spanish Government has given REE larger than expected capex for the period 2013-16, and REE has issued a €400m 9-year bond at attractive rates.

EDF (+7% relative) – On Monday EDF announced an agreement with the French Government regarding the CSPE tariff deficit. EDF will be remunerated for it at 1% above government bonds, and recover the €4.9bn of accumulated deficit at the end of 2012 by 2018.

Shanks (+6% relative) – On Monday, Shanks announced that they had signed a 25 year PFI contract with Wakefield council, estimated to be worth c.£750m over its life.

PPC (+5.6% relative) – No real news flow.

Snam (+5% relative) – On Tuesday ENI issued bonds convertible into c. €289m of Snam. This bond issuance has pushed out the overhang risk on an 8-9% stake in Snam for at least 3 years.

REE, 8.4%

EDF, 5.9%

Shanks, 4.9%

PPC, 4.5%

Snam, 3.9%

Sector, -1.0%

Market, 0.0%

Endesa, -2.9%

SSE, -3.0%

ZE PAK, -3.2%

Drax, -3.7%

RWE, -4.5%

-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Total return (€) Relevant country index

Page 4: Weekly Utilities 21-25 Jan 2013

4

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Bottom 5 last week

Endesa (-1.9% relative) – Over 60% of the 2013E tariff deficit is attributable to the non-mainland territories, this means that Endesa/Enel is likely to have to finance €1bn more of the tariff deficit than the market perceives.

SSE (-2% relative) – No real news flow.

ZE PAK (-2.2% relative) – Ze Pak fell with polish power prices, which were down 2.1% this week.

Drax (-2.7% relative) – On Wednesday S&P announced it had downgraded Drax’s long term credit rating to BB from BB+. S&P’s reasons for the downgrade included a reduction in Drax’s credit metrics from the recent debt issuance, the execution risk entailed in Drax’s biomass conversion, and Drax’s exposure to commodity prices.

RWE (-3.5% relative) – RWE fell on concerns surrounding its exposure to the continuing fall in power prices, its limited progress on debt reduction and the risk that negative noise into the elections in Germany could further weigh on the shares.

Page 5: Weekly Utilities 21-25 Jan 2013

5

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Last month Last 3 months

Last 12 months Year to date

Source: Bloomberg. Priced at close on 17 January 2013. Total returns are all in Euros

PPCREE

EnagasShanks

ZE PAKEGP

Gas NatEDP

SnamIberdrolaEDF

TernaEDPR

EnelPGE

PennonEndesaUU

GDF SuezElia

FortumSuez Env

EONCEZ

Severn TrentCentrica

DraxSSE

VeoliaNat GridRWE

-10 -5 0 5 10 15 20 25 30

%PPC

Gas NatShanks

REEEnagas

EDPEGPTernaEliaEDPR

EnelSuez Env

SnamEndesa

IberdrolaPGE

VeoliaCentricaFortum

DraxUU

SSENat Grid

Severn TrentEDF

PennonCEZ

GDF SuezRWE

EON

-40 -20 0 20 40 60%

PPCREE

EnagasCentrica

UUTernaSSE

EliaEndesaGas NatVeoliaNat GridSnamEDP

Severn TrentDraxRWEEnel

PGESuez Env

ShanksEGP

PennonIberdrola

EDPRFortum

CEZEONEDF

GDF Suez

-40 -20 0 20 40 60 80 100 120%

REEPPC

EnagasShanks

EGPZE PAKEDPR

Gas NatEDPEDF

SnamTerna

PGEEndesaUUPennon

EnelIberdrola

FortumElia

EONSuez Env

DraxCentrica

GDF SuezSSE

Severn TrentVeolia

Nat GridCEZ

RWE

-10 -5 0 5 10 15 20%

Page 6: Weekly Utilities 21-25 Jan 2013

6

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

The week ahead

Mon 21

Tue 22 EVN ex div;€0.42 gross DPS, 3.3% gross yield

IBE pays div;

€0.14 gross DPS, 3.5% gross yield

Wed 23 SSE ex div;

25.2p net DPS; 28p gross DPS; 1.9% gross yield

Deadline for UK water companies to respond to Ofwat licence modifications

The 24 water companies which will be expected to respond to Ofwat must do so by 23 January. All three of the listed water companies have already accepted the licence modifications. However if any of the other water companies rejected the proposals Ofwat would refer that company to theCompetition Commission (CC). If the CC made any alterations to the licence of a company whom Ofwat had referred to them, all other water companies’ licences would be similarly altered.

European Parliament Industry & Energy Committee to give opinion on backloadingWe expect the European Parliament Industry and Energy Committee to give its opinion on backloading on either the 23 or 24 January.

Thu 24

Fri 25

Page 7: Weekly Utilities 21-25 Jan 2013

7

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Pair trades

We base these short-term ideas on historical trading relationships and imminent newsflow. Our fundamental and longer term preferences are not affected.

Ongoing pair tradesLong term rec Date added

Price added at

Latest close price* Total return

Pair trade performance

Stoxx Euro Utilities 19-Apr-08 322.3 261.8 -27.7% n/a

L Gas Natural OW 18-Oct-12 12.01 13.95 +19.5% +59.0%

S E.ON N 18-Oct-12 18.56 13.95 -24.8%

L United Utilities N 29-Nov-12 693.50 711.00 +4.4% +8.0%

S National Grid UW 29-Nov-12 706.00 682.50 -3.3%

Source: Bloomberg. Past performance may not be indicative of future performance. * Close on 17 January 2013.

Long Gas Natural/short E.ON +59.0% in 12 weeks. Maintain

We believe that consensus is underestimating the sustainability of higher Gas Nat earnings in the gas supply business. The renegotiation of LNG contracts and growth in volumes drives 121% EBITDA growth in this business in 2012-14 on our estimates. We are 8-10% above consensus EPS for 2013-14 and we keep this pair trade on as we expect consensus upgrades to drive continued share price performance.

Gas Nat’s exposure to distribution networks gives it a solid cash flow generative base and underpins its 13.6% equity FCF yield. We forecast ND/EBITDA to drop from 3.7x in 2011A to 2.4x 2014E, which means that unlike E.ON, Gas Nat will not need to make disposals of regulated assets.

We are concerned about E.ON's high leverage and strategic positioning due to pressure from renewables and poor demand.

The macroeconomic backdrop is clearly a major risk in this pair trade. Whilst markets appear to be increasingly relaxed about the risk of a ‘tail risk event’ in the Euro area now, we will be watching the newsflow carefully for any turn in sentiment. JPM strategists believe that Moody’s recent decision to maintain Spain’s credit rating at Baa3 was positive though, and any forthcoming request for a bailout should also be positive.

0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12

Gas Nat/EON

Page 8: Weekly Utilities 21-25 Jan 2013

8

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Long United Utilities /short National Grid +8.0% in 6 weeks. Maintain

UU’s share price underperformed Grid’s following Ofwat’s licence modification proposals on 26 October, which raised market concerns about excessive regulatory intervention However, this morning United Utilities have accepted Ofwat's revised license modifications, published on 21 December. This has removed any risk of a direct UU referral to the Competition Commission.

In contrast, we believe that Ofgem’s Final Proposals for National Grid, published on 17 December, are challenging and that Grid may choose to reject at least part of the proposals (we see gas transmission and London gas distribution as particularly at risk). A rejection would lead to a Competition Commission referral and continued uncertainty over Grid’s dividend policy.

Closed trades

Since inception in April-08 we have had 33 winners (pair trades end in positive territory) and 11 losers (negative).

Last 18 monthsOpened Closed Profit/(loss)

L VIE, S SEV 2 Feb 11 26 Mar 11 +1.3%L CNA, S DRX 28 Oct 10 08 Apr11 -10.5%L EON, S GSZ 8 Apr 11 6 May 11 +2.9%L CEZ, S FUM 29 Sep 11 14 Oct 11 +7.6%L ENE, S IBE 08 Jul 11 21 Oct 11 -4.5% L RWE, S FUM 3 Feb 12 17 Feb12 +6.8%L UU, S NG 23 Feb 12 7 June 12 +5.6%L EON, S FUM 14 Jun 12 12 Jul 12 +14.0%L CNA, S SSE 8 Apr 11 9 Aug 12 -1.7%L GSZ, S EOAN 09 Au 12 19 Oct 12 -6.9%L PNN, S SVT 16 Aug12 16 Nov 12 -3.1%

Source: Bloomberg. Past performance may not be indicative of future performance.

0.8

0.9

0.9

1.0

1.0

1.1

1.1

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12

United Utilities/National Grid

Ratio (first stock divided by second stock) Source: Bloomberg. Vertical line indicates where pair trade initiated

1yr avg plus 2*standard deviations 1yr avg minus 2*standard deviations

Page 9: Weekly Utilities 21-25 Jan 2013

9

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Commodities, hydro & wind

Power – year/season ahead forwards CO2

Oil – European Brent Gas

Coal UK winter 2013/14 clean dark spread

Source: Bloomberg

35

45

55

Apr-12 Jun-12 Aug-12 Oct-12 Dec-12

€or

£/M

Wh

Germany '14 UK Win13/14 Nordpool '14 Spain '14

6

7

8

9

10

11

12

13

Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12€/

tCO2 '14 CO2 '15

85

90

95

100

105

110

115

120

125

130

Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

$/bb

l

23

24

24

25

25

26

26

27

27

28

28

29

Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

€/M

Wh

TTF Gas '14 TTF Gas '15

90

95

100

105

110

115

120

125

130

Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

$/t

API2 '15 API2 '14

0

2

4

6

8

10

12

14

16

18

20

Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12

£/M

Wh

UK Win13/14 Clean Dark Spread

Page 10: Weekly Utilities 21-25 Jan 2013

10

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

International freight

Source: Bloomberg

Recyclate prices - UK

Source: Bloomberg

Legacy Oil-linked long term contract gas price spread to TTF spot gas price, 2014

Source: Bloomberg, RWE

6

7

7

8

8

9

9

10

10

11

11

Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

$/t

0

50

100

150

200

250

300

350

Jan 07

Jun 07

Nov 07

Apr 08

Sep 08

Feb 09

Jul 09

Dec 09

May 10

Oct 10

Mar 11

Aug 11

Jan 12

Jun 12

Nov 12

€/t

Glass Paper Plastic Metal

-9.0

-8.0

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

20.0

22.0

24.0

26.0

28.0

30.0

32.0

34.0

36.0

38.0

Mar 11 Jul 11 Nov 11 Mar 12 Jul 12 Nov 12

Spread (RHS) LTC (LHS) TTF (LHS)

Page 11: Weekly Utilities 21-25 Jan 2013

11

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Nordic hydro conditions

Source: Nordpool spot

French hydro conditions

Source: RTE

Spanish hydro conditions

Source: Spanish Environment Ministry

Italian hydro conditions

Source: Terna

Greek hydro conditions

Source: DESMIE

Spanish wind conditions

Source: Red Electrica de España. Output last month as a proportion of output in the previous 12

months

15%

25%

35%

45%

55%

65%

75%

85%

95%

2009 2010 2011 2012

Per

cent

Series1 1990-2006

30%

40%

50%

60%

70%

80%

90%

524946434037343128252219161310741

2007 2008 2009 2010 2011 2012

5,000

7,000

9,000

11,000

13,000

15,000

17,000

2007 2008 2009 2010 2011 2012 2013

GW

h

Actual 10 year average

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

GW

h

7 year average 2010 2011 2012

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

3,100

3,300

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2012 2011 2010 9 year average

20082009

2010

2011

2012

5%

7%

9%

11%

13%

15%

Jan Mar May Jul Sep Nov

Page 12: Weekly Utilities 21-25 Jan 2013

12

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Electricity demand monitor

% y-o-ySpain (adjusted for weather and working days) Italy (adjusted for weather and working days)

Germany (adjusted for working days) UK (unadjusted)

Nordpool (unadjusted) France (adjusted for weather and working days)

Source: DECC, National Grid, Terna, Red Electrica, Nordpool, RTE, Platts, Company data, J.P. Morgan estimates.

-4.9%

-2.5%

-1.2%

-2.0%

-0.9%

-3.2%

-1.8%-2.4%

-1.6%-1.9%

-1.0%

-2.8%-3.1%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

-3.3% -3.1%

-1.9%

-4.9%-5.8%

-4.0%

-0.9%-1.4% -1.2%

-9.6%

-3.7%

-5.6%

-3.6%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12

-0.9%

4.3%

-3.3%

-1.3% -1.5%

-3.1%

-1.3% -1.0%

0.0% 0.3%

-3.5%

-2.2%

-0.3%

-4%-3%-2%-1%0%1%2%3%4%5%

Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12

-6.6%

-12.0%

-5.3%

5.4%

-5.5%

6.9%5.1%

-2.1%

0.4%

-0.9% -1.7%

4.1%2.7%

-15%

-10%

-5%

0%

5%

10%

Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

-14.1%

-1.5%

1.7%

-5.9%

7.0%

0.4%2.1%

-0.3% -0.4% -0.1% -0.9%

7.5%

17.8%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12

-1.6%

-1.0%

0.0%0.4%

-1.3%

-0.4%

-3.0%

-1.4%

-0.7%

-2.7%

-1.2%-0.9%

-0.4%

-4%-3%-3%-2%-2%-1%-1%0%1%1%

Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

Page 13: Weekly Utilities 21-25 Jan 2013

13

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

J.P. Morgan latest research

RWE: Earnings outlook deteriorating, debt still too high and some political risk; downgrade to Underweight

We are downgrading RWE from Neutral to Underweight and cutting our PT from €32 to €28. We think the continued fall in power prices, limited progress on debt reduction and risk of negative noise into the elections in Germany could further weigh on the shares. Our new 2014E EPS is 14% below median consensus – the 8.7x implied P/E is not compelling given the execution risk on deleveraging and LT growth outlook, in our view.Click here for the full report

Spanish utilities/Enel: €2.9bn tariff deficit in 13E, but 78% attrib to ELE/Enel. GAS, IBE and EDP get only a small share – ALERT

The absence in the 2013 government budget of any extra contribution to pay for electricity costs and the removal of the obligation to eliminate the electricity tariff deficit (TD) in 2013 (published by the government on 31 Dec 2012) have pushed the market to factor in more uncertainty in the investment case of the Spanish utilities. We agree that the existence of a TD in 2013 creates more risks. However, we disagree on the market assumption about how the 13E TD will be allocated and hence on its impact on the net debts of the companies. As 60%+ of the 13E TD isattributable to the non mainland territories (Endesa monopoly), this means that ELE/Enel should finance €1bn of higher TD than what the market perceives, while IBE and GAS should finance €0.6bn and €0.2bn less respectively. In other words, IBE’s and GAS’s 13E cash flows should surprise on the upside, while ELE/Enel is likely to struggle to improve materially its FCF. We reiterate our bullish stance on GAS and our preference for Southern European utils (incl IBE) vs. Central Europe.Click here for the full report

Snam: Bond convertible into Snam shares reduces overhang risk - ALERT

The bonds being issued by ENI today should push out the overhang risk on an 8-9% stake in Snam for at least the next 3 years, if not permanently. We would expect ENI to continue to look at options for the remaining 11-12% of Snam it owns that is not covered by the convertible bonds, including potential placements with sovereign wealth funds. We therefore see much lower risk of Snam shares being placed in the market near term. Snam is trading at a very reasonable 1.7% EV premium to Dec-2013 RAB and 7.1% 2012E dividend yield.Click here for the full report

Vincent de Blic, CFA

(44-20) 7155-6623

[email protected]

15 January 2013

Javier Garrido

(34-915) 161-557

[email protected]

15 January 2013

Sarah Laitung, CFA

(44-20) 7325-6826

[email protected]

15 January 2013

Page 14: Weekly Utilities 21-25 Jan 2013

14

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Public Power Corp: 9% tariff increase slightly disappointing although further hikes in 2013 not ruled out - ALERT

Yesterday the government announced that LV tariffs will be increased by 8.6-9.2% from 1 January 2013. PPC had requested 10.8% (although we believe this includes the renewables levy), and the press had speculated last week that the increase would be 10-11%. We therefore see the ruling as a slight disappointment, particularly as the scope of the social tariff is widening, which will put more pressure on standard tariffs in 2014. However, importantly the statement leaves the door open for further tariffincreases later in 2013, with the requirement to make tariffs fully cost reflective by June being reiterated. With continued uncertainty in the regulatory environment, we stay Neutral.Click here for the full report

Sarah Laitung, CFA

(44-20) 7325-6826

[email protected]

15 January 2013

Page 15: Weekly Utilities 21-25 Jan 2013

15

Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Macro, dividends & bonds

Macroeconomic events

Mon 14 Jan Tue 15 Jan Wed 16 Jan Thu 17 Jan Fri 18 JanUK: Dec Labour

market reportUS: Jan PMI UK: 4Q12 GDP estimate

Euro area: PMI

Source: Bloomberg, J. P. Morgan.

Dividend calendar

Company Declared Ex Record Payable Gross DPS Type Gross yield

PENNON GROUP PLC 29 Nov 12 30 Jan 13 01 Feb 13 04 Apr 13 9.73 Semi-Anl Interim 1.5%

SSE PLC 14 Nov 12 23 Jan 13 25 Jan 13 22 Mar 13 28.00 Semi-Anl Interim 1.9%

UNITED UTILITIES GROUP PLC 28 Nov 12 19 Dec 12 21 Dec 12 01 Feb 13 12.71 Semi-Anl Interim 1.8%

E.ON SE 12 Nov 12 06 May 13 03 May 13 06 May 13 1.10 AnnualRegular Cash 7.9%

EVN AG 13 Dec 12 22 Jan 13 21 Jan 13 25 Jan 13 0.42 AnnualRegular Cash 3.3%

IBERDROLA SA 23 Oct 12 03 Jan 13 02 Jan 13 22 Jan 13 0.14 Semi-Anl Interim 3.5%

Source: Bloomberg. Priced at close on 17 January 2013.

Dividend yield spread

Spread of European Utilities sector forward dividend yield over Eurozone bond yields

Source: Bloomberg, J. P. Morgan estimates. Price at close on 17 January 2013.

-200-100

0100200300400500600700

Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13

Spr

ead

(bps

)

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Valuation comps

Source: J. P. Morgan estimates. ** Under applicable law and/or J. P. Morgan Chase & Co policy all recommendations and price targets for this company have been removed. Priced at close on 17 January 2013.

J.P. Morgan Cazenove Utilities equity based valuation comps

Current Price Potential Mkt Cap Free float Adj EPS CAGR 12m fwd consEquity based Rating Price target upside (%) (€m) (€m) 2011-15 P/E 5yr avg 2011E 2012E 2013E 2014E 2015E 2011E 2012E 2013E 2014E 2015EE.ON UW 13.97 14.00 0.3% 26,610 24,228 4.3% 10.0 10.6 6.2 10.6 9.8 9.0 7.2% 7.9% 5.4% 5.7% 6.1%RWE UW 29.43 28.00 -4.8% 18,089 15,366 -7.4% 8.7 6.4 7.2 7.5 8.6 8.7 6.8% 6.8% 6.8% 6.8% 6.8%GDF SUEZ UW 15.35 14.00 -8.8% 34,790 20,014 -1.0% 11.9 10.3 10.0 11.8 11.3 10.7 9.8% 9.8% 9.8% 9.8% 6.6%EDF OW 14.71 44.00 199.2% 27,188 4,213 14.4% 13.7 7.7 6.6 6.1 5.0 4.5 8.2% 8.8% 9.5% 10.5% 11.1%Fortum N 14.11 13.90 -1.5% 12,535 6,172 0.6% 12.4 9.7 10.6 10.4 10.7 9.5 7.1% 7.1% 7.1% 7.1% 7.9%CEZ N 651.70 900.00 38.1% 13,569 4,098 2.8% 9.8 8.6 7.8 7.8 7.5 7.7 7.1% 7.7% 7.7% 9.4% 9.8%PGE N 18.92 20.00 5.7% 8,571 3,267 11.3% 10.3 13.6 8.8 10.9 8.8 8.9 9.7% 7.6% 4.6% 5.7% 5.6%ZE PAK OW 30.72 32.00 4.2% 387 183 -14.7% 5.6 4.7 4.7 8.8 7.6 8.9 n/a 6.4% 3.4% 3.9% 3.4%Elia N 33.97 28.00 -17.6% 2,050 1,068 n/a 14.4 16.4 16.2 15.2 n/a n/a 4.1% 4.1% 4.1% n/a n/aVeolia UW 8.88 9.66 8.8% 4,614 3,372 23.6% 14.4 14.4 11.8 10.3 8.3 6.2 7.9% 7.9% 7.9% 8.4% 10.6%Suez Environnement OW 9.01 11.98 33.0% 4,596 2,550 2.2% 14.1 10.6 12.6 12.1 11.1 9.7 7.2% 7.2% 7.2% 7.2% 7.6%North Europe -weighted average 37.1% 2.0% 10.9 9.8 8.3 10.0 9.6 9.0 7.8% 8.0% 7.2% 7.6% 7.1%Simple average 23.3% 3.6% 11.4 10.3 9.3 10.1 8.9 8.4 7.5% 7.4% 6.7% 7.5% 7.5%

Enel N 3.20 3.50 9.2% 30,128 20,715 1.1% 8.3 7.3 8.5 8.1 7.4 7.0 8.1% 7.2% 7.5% 8.1% 8.7%Iberdrola N 4.09 5.60 36.8% 24,586 22,972 2.7% 11.0 8.6 8.7 8.8 8.5 7.8 8.0% 8.0% 8.0% 8.0% 8.0%Endesa N 17.33 18.50 6.8% 18,343 1,456 1.4% 9.6 8.6 10.3 9.8 8.7 8.2 5.8% 4.8% 5.1% 5.7% 6.1%EDP OW 2.41 3.00 24.4% 8,820 4,436 5.7% 9.9 7.8 7.5 7.9 6.7 6.3 7.7% 8.3% 8.3% 8.7% 9.1%Gas Natural OW 13.95 15.50 11.1% 13,960 4,420 9.9% 9.7 12.0 9.7 9.8 8.8 8.2 5.9% 6.2% 6.2% 6.8% 7.3%Public Power Corp N 6.69 3.20 -52.2% 1,552 759 n/a 7.7 nm 22.4 14.5 5.2 3.6 n/a 1.6% 2.4% 6.7% 9.7%Red Electrica OW 43.20 50.00 15.8% 5,843 4,455 11.4% 12.3 12.1 10.8 9.5 8.6 7.9 5.0% 6.0% 6.9% 7.5% 8.3%Enagas OW 17.86 19.00 6.4% 4,264 3,289 9.7% 10.9 11.9 10.8 10.0 9.1 8.2 5.5% 6.5% 7.0% 7.7% 8.5%Snam OW 3.64 4.20 15.4% 12,309 6,127 3.3% 13.0 12.6 13.0 13.2 11.6 11.1 6.6% 6.9% 7.1% 7.4% 7.6%Terna OW 3.12 3.20 2.5% 6,275 4,057 6.1% 14.9 16.6 15.5 14.7 13.3 13.1 6.7% 6.4% 6.4% 6.6% 6.8%South Europe - weighted average 14.0% 3.9% 10.5 9.6 9.7 9.5 8.6 8.0 7.3% 7.2% 7.4% 7.8% 8.1%Simple average 7.6% 5.7% 10.7 10.8 11.7 10.6 8.8 8.1 6.6% 6.2% 6.5% 7.3% 8.0%

National Grid UW 682.50 640.00 -6.2% 29,703 28,812 2.7% 11.2 13.3 12.5 12.9 12.4 12.0 6.4% 6.7% 6.8% 7.0% 7.2%Centrica OW 338.40 365.00 7.9% 20,899 20,058 6.6% 11.5 13.1 12.2 11.6 11.1 10.2 5.1% 5.5% 5.8% 6.2% 6.3%SSE UW 1433.00 1190.00 -17.0% 16,439 16,428 n/a 11.0 12.7 12.4 12.3 12.1 n/a 6.2% 6.5% 6.9% 7.2% n/aDrax UW 553.50 405.00 -26.8% 2,411 1,761 -12.9% 9.4 10.0 11.1 24.4 33.7 17.3 5.6% 5.0% 2.3% 1.7% 3.2%United Utilities N 711.00 705.00 -0.8% 5,785 5,609 n/a 14.0 20.6 17.2 16.3 14.7 n/a 5.0% 5.4% 5.6% 5.9% n/aSevern Trent N 1578.00 1610.00 2.0% 4,465 4,333 n/a 13.9 17.8 17.9 18.1 18.1 n/a 4.9% 5.3% 5.7% 6.0% n/aPennon OW 658.00 670.00 1.8% 2,852 2,832 n/a 15.0 13.9 15.5 14.9 12.9 n/a 4.0% 4.3% 4.6% 4.9% n/aShanks OW 97.00 140.00 44.3% 460 454 n/a 12.9 13.5 12.7 9.7 8.4 n/a 4.1% 4.3% 4.5% 4.7% n/aUK - weighted average -5.2% 3.7% 11.7 13.8 13.1 13.3 12.9 11.4 5.7% 6.0% 6.2% 6.5% 6.7%Simple average 0.6% -1.2% 12.4 14.4 13.9 15.0 15.4 13.2 5.2% 5.4% 5.3% 5.4% 5.6%

EDP Renovaveis OW 4.26 4.70 10.4% 3,715 950 24.5% 27.9 42.0 28.6 24.1 18.9 17.5 n/a 1.0% 1.2% 1.6% 1.7%Enel Green Power OW 1.51 2.23 47.7% 7,550 2,394 11.2% 15.6 16.2 14.8 12.7 11.5 10.6 1.9% 2.0% 2.4% 2.6% 2.8%Renewables - weighted average 35.4% 15.0% 19.1 23.5 18.7 15.9 13.6 12.6 1.9% 1.7% 2.0% 2.3% 2.5%Simple average 29.0% 17.8% 21.7 29.1 21.7 18.4 15.2 14.0 1.9% 1.5% 1.8% 2.1% 2.3%

SECTOR - weighted average 20% 3.3% 11.1 11.3 10.5 11.0 10.5 9.3 6.9% 7.0% 6.9% 7.2% 7.3%Simple average 13% 5.0% 12.1 12.8 12.1 12.1 11.0 9.3 6.3% 6.1% 5.9% 6.5% 7.1%

EDP ex EDPR 5.6 5.6 6.0 5.1 4.8 11.4% 11.8% 11.7% 12.1% 12.7%Enel ex EGP 6.5 7.8 7.5 6.9 6.5 9.4% 8.3% 8.6% 9.3% 10.0%

Source: J.P. Morgan estimates, Company data, Bloomberg. 2011 represents the 12 months to Dec-11 or Mar-12 etc** Under applicable law and/or J. P. Morgan Chase & Co policy all recommendations and price targets for this company have been removed

Adj P/E Gross yield (%)

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Javier Garrido(34-91) [email protected]

Source: J. P. Morgan estimates. ** Under applicable law and/or J. P. Morgan Chase & Co policy all recommendations and price targets for this company have been removed. *** Year end net debt/FY EBITDA. Priced at close on 17 January 2013.

J.P. Morgan Cazenove Utilities EV based valuation comps

2013 EVEV&ND based Rating (€m) 2011E 2012E 2013E 2014E 2015E 2011E 2012E 2013E 2014E 2015EE.ON UW 57,224 7.1 5.9 6.3 5.8 5.5 n/a n/a n/a n/a n/aRWE UW 45,827 5.8 5.8 5.4 5.1 5.0 n/a n/a n/a n/a n/aGDF SUEZ UW 79,937 5.0 5.2 5.9 5.7 5.7 n/a n/a n/a n/a n/aEDF OW 76,133 5.1 4.7 4.4 3.8 3.3 n/a n/a n/a n/a n/aFortum N 19,081 7.6 8.1 7.9 7.9 7.3 n/a n/a n/a n/a n/aCEZ N 19,859 5.7 5.7 5.7 5.5 5.4 n/a n/a n/a n/a n/aPGE N 9,319 5.7 4.8 5.4 4.8 4.5 n/a n/a n/a n/a n/aZE PAK OW 745 3.8 4.5 4.7 4.8 5.6 n/a n/a n/a n/a n/aElia N 5,145 11.0 11.0 10.8 n/a n/a n/a n/a n/a n/a n/aVeolia UW 12,568 5.7 4.9 4.7 4.4 3.8 n/a n/a n/a n/a n/aSuez Environnement OW 15,833 7.0 7.1 6.9 6.2 5.8 n/a n/a n/a n/a n/aNorth Europe -weighted average 5.9 5.6 5.7 5.3 5.0 n/a n/a n/a n/a n/aSimple average 6.3 6.2 6.2 5.4 5.2 n/a n/a n/a n/a n/a

Enel N 97,848 5.9 6.1 5.7 5.3 5.0 n/a n/a n/a n/a n/aIberdrola N 56,563 7.5 7.4 7.0 6.5 6.0 n/a n/a n/a n/a n/aEndesa N 37,569 5.6 5.6 5.3 5.0 4.7 n/a n/a n/a n/a n/aEDP OW 28,726 8.0 7.5 7.2 6.5 5.9 n/a n/a n/a n/a n/aGas Natural OW 31,845 7.5 6.6 6.3 5.7 5.3 n/a n/a n/a n/a n/aPublic Power Corp N 8,596 9.9 7.2 6.2 5.1 4.7 n/a n/a n/a n/a n/aRed Electrica OW 11,277 9.6 8.7 7.7 7.0 6.3 n/a n/a n/a n/a n/aEnagas OW 7,486 8.7 8.0 7.3 6.8 5.9 n/a n/a n/a n/a n/aSnam OW 26,212 9.6 9.6 9.3 9.3 9.2 1.2% 3.2% 3.1% 3.3% 3.2%Terna OW 12,569 9.6 9.1 8.7 8.5 8.4 7.2% 6.0% 4.0% 1.5% -1.2%South Europe - weighted average 7.3 7.0 6.6 6.2 5.8 3.2% 4.1% 3.4% 2.7% 1.8%Simple average 8.2 7.6 7.1 6.6 6.1 4.2% 4.6% 3.5% 2.4% 1.0%

National Grid UW 56,076 9.2 9.1 8.9 8.8 8.7 n/a 22.1% 18.2% 14.3% 10.4%Centrica OW 25,288 5.8 5.6 5.0 4.7 4.3 n/a n/a n/a n/a n/aSSE UW 26,046 10.1 10.3 10.3 10.5 n/a n/a n/a n/a n/a n/aDrax UW 2,255 5.2 5.9 10.5 11.8 8.3 n/a n/a n/a n/a n/aUnited Utilities N 12,374 11.2 10.9 10.7 10.4 n/a 17.5% 11.9% 8.1% 6.9% n/aSevern Trent N 9,714 9.7 10.2 10.2 10.3 n/a 11.1% 11.5% 9.5% 8.0% n/aPennon OW 5,902 10.8 11.7 11.5 10.4 n/a -3.7% 5.4% -3.8% -14.1% n/aShanks OW 788 5.9 5.8 5.3 4.8 n/a n/a n/a n/a n/a n/aUK - weighted average 9.0 9.0 8.8 8.7 7.4 10.8% 18.2% 14.1% 10.5% 10.4%Simple average 8.5 8.7 9.0 9.0 7.1 8.3% 12.7% 8.0% 3.8% 10.4%

EDP Renovaveis OW 8,769 10.7 9.8 9.2 8.7 8.3 n/a n/a n/a n/a n/aEnel Green Power OW 12,888 8.1 7.7 6.9 6.4 5.9 n/a n/a n/a n/a n/aRenewables - weighted average 9.1 8.5 7.8 7.4 6.9 n/a n/a n/a n/a n/aSimple average 9.4 8.7 8.1 7.6 7.1 n/a n/a n/a n/a n/a

SECTOR - weighted average 7.0 6.8 6.6 6.3 5.6 6.4% 13.7% 10.7% 8.0% 6.9%Simple average 7.7 7.4 7.3 6.9 5.9 6.6% 10.0% 6.5% 3.3% 4.1%

EDP ex EDPR 7.4 7.0 6.8 5.9 5.3Enel ex EGP 5.8 6.0 5.6 5.2 4.9

Source: J.P. Morgan estimates, Company data, Bloomberg. 2011 represents the 12 months to Dec-11 or Mar-12 etc** Under applicable law and/or J. P. Morgan Chase & Co policy all recommendations and price targets for this company have been removed

***Year end EV/adj FY EBITDA

EV/EBITDA*** EV premium to RAB

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Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

Source: J. P. Morgan estimates. ** Under applicable law and/or J. P. Morgan Chase & Co policy all recommendations and price targets for this company have been removed. *** Year end net debt/FY EBITDA. Priced at close on 17 January 2013.

J.P. Morgan Cazenove Utilities net debt based valuation comps

2013 NDEV&ND based Rating (€m) 2011E 2012E 2013E 2014E 2015E 2011E 2012E 2013E 2014E 2015EE.ON UW 11,699 3.9 3.4 3.5 3.2 3.0 1.9 1.5 1.2 1.0 0.8RWE UW 8,877 3.5 3.6 3.3 3.0 2.9 1.4 1.3 1.0 0.6 0.4GDF SUEZ UW 32,306 3.3 3.5 3.6 3.5 3.5 2.3 2.5 2.4 2.2 2.2EDF OW 25,839 4.0 3.7 3.4 3.0 2.5 1.7 1.6 1.5 1.2 0.9Fortum N 7,939 2.9 3.3 3.3 3.4 3.1 2.9 3.3 3.3 3.3 3.1CEZ N 6,906 2.2 2.3 2.3 2.2 2.2 1.8 2.0 2.0 1.9 1.9PGE N 21 0.1 0.3 0.4 0.4 0.2 -0.3 -0.1 0.0 0.1 0.2ZE PAK OW 214 2.0 2.2 2.1 2.4 3.2 1.0 1.5 1.4 1.7 2.5Elia N 2,951 6.4 6.5 6.5 n/a n/a 6.1 6.2 6.2 n/a n/aVeolia UW 10,517 5.1 4.5 4.3 4.1 3.6 3.9 3.2 3.0 2.9 2.5Suez Environnement OW 8,624 4.2 4.3 4.3 3.8 3.5 3.7 3.8 3.7 3.3 3.0North Europe -weighted average 3.6 3.5 3.4 3.1 2.9 1.9 1.9 1.8 1.7 1.6Simple average 3.4 3.4 3.4 2.9 2.8 2.4 2.4 2.3 1.8 1.7

Enel N 46,920 3.8 3.9 3.5 3.3 3.0 3.1 3.0 2.7 2.5 2.2Iberdrola N 26,273 4.7 4.3 3.8 3.3 2.8 3.9 3.6 3.3 2.9 2.4Endesa N 6,011 1.4 1.3 1.1 0.9 0.7 1.8 1.5 0.9 0.5 0.2EDP OW 16,732 5.3 5.0 4.6 4.0 3.5 4.8 4.5 4.2 3.7 3.2Gas Natural OW 14,525 4.3 3.7 3.4 3.1 2.8 3.7 3.2 2.9 2.4 2.2Public Power Corp N 6,188 6.2 4.0 3.0 2.3 2.2 6.9 5.0 4.5 3.8 3.5Red Electrica OW 4,586 4.7 4.3 3.7 3.3 2.9 4.0 3.6 3.1 2.7 2.4Enagas OW 3,285 3.9 3.6 3.2 3.0 2.5 3.9 3.6 3.2 3.0 2.5Snam OW 13,148 4.6 4.9 5.0 5.1 5.2 4.3 4.6 4.7 4.9 5.0Terna OW 6,171 4.9 4.9 4.8 4.9 4.9 4.4 4.4 4.3 4.3 4.3South Europe - weighted average 4.1 3.9 3.5 3.2 2.9 3.4 3.2 2.9 2.6 2.3Simple average 4.4 4.0 3.6 3.3 3.0 4.1 3.7 3.4 3.1 2.8

National Grid UW 25,659 4.1 4.1 4.1 4.1 4.2 4.1 4.1 4.1 4.1 4.2Centrica OW 4,389 1.0 1.1 0.9 0.7 0.5 1.0 1.1 0.9 0.7 0.5SSE UW 10,183 3.5 3.7 4.0 4.4 n/a 3.5 3.7 4.0 4.4 n/aDrax UW -77 -0.7 -0.9 -0.4 0.5 0.5 -0.7 -0.9 -0.4 0.5 0.5United Utilities N 6,590 5.7 5.7 5.7 5.6 n/a 5.7 5.7 5.7 5.6 n/aSevern Trent N 5,250 5.0 5.4 5.5 5.7 n/a 5.0 5.4 5.5 5.7 n/aPennon OW 3,023 5.1 5.9 5.9 5.2 n/a 5.1 5.9 5.9 5.2 n/aShanks OW 273 1.7 1.9 1.8 1.6 n/a 1.7 1.9 1.8 1.6 n/aUK - weighted average 3.6 3.7 3.7 3.8 3.0 3.2 3.3 3.3 3.3 2.5Simple average 3.2 3.4 3.4 3.5 1.7 3.2 3.4 3.4 3.5 1.7

EDP Renovaveis OW 4,562 5.5 5.1 4.8 4.8 4.6 5.5 5.1 4.8 4.8 4.6Enel Green Power OW 4,721 2.8 2.8 2.7 2.5 2.3 2.6 2.6 2.5 2.4 2.2Renewables - weighted average 3.9 3.7 3.5 3.5 3.2 3.6 3.5 3.3 3.3 3.0Simple average 4.1 3.9 3.7 3.7 3.4 4.0 3.9 3.7 3.6 3.4

SECTOR - weighted average 3.8 3.7 3.5 3.3 2.9 2.3 2.3 2.2 2.0 1.8Simple average 3.7 3.6 3.5 3.2 2.8 3.3 3.2 3.0 2.8 2.3

Source: J.P. Morgan estimates, Company data, Bloomberg. 2011 represents the 12 months to Dec-11 or Mar-12 etc** Under applicable law and/or J. P. Morgan Chase & Co policy all recommendations and price targets for this company have been removed

***Year end ND/adj FY EBITDA**** Year end economic net debt (including provisions and other adjustments where appropriate)/FY EBITDA

economic ND/EBITDA**** financial ND/EBITDA***

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Javier Garrido(34-91) [email protected]

Companies Recommended in This Report (all prices in this report as of market close on 17 January 2013)E.ON (EONGn.DE/€13.97/Underweight), Gas Natural (GAS.MC/€13.95/Overweight), National Grid (NG.L/683p/Underweight), Public Power Corp (DEHr.AT/€6.69/Neutral), RWE (RWEG.DE/€29.43/Underweight), United Utilities (UU.L/711p/Neutral)

Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in E.ON, RWE, Gas Natural, National Grid, United Utilities, Public Power Corp.

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for RWE, Gas Natural, National Grid within the past 12 months.

Beneficial Ownership (1% or more): J.P. Morgan beneficially owns 1% or more of a class of common equity securities of E.ON, RWE.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: E.ON, RWE, Gas Natural, National Grid, United Utilities, Public Power Corp.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: RWE, Gas Natural, National Grid.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: E.ON, RWE, Gas Natural, National Grid, United Utilities, Public Power Corp.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: E.ON, RWE, Gas Natural, National Grid.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking RWE, Gas Natural, National Grid.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from E.ON, RWE, Gas Natural, National Grid, United Utilities.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from E.ON, RWE, Gas Natural, National Grid, United Utilities, Public Power Corp.

Broker: J.P. Morgan Securities plc acts as Corporate Broker to United Utilities.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail [email protected].

Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com.

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Javier Garrido(34-91) [email protected]

Coverage Universe: Garrido, Javier: EDP (EDP.LS), Enagas (ENAG.MC), Endesa (ELE.MC), Enel (ENEI.MI), Enel Green Power (EGPW.MI), Gas Natural (GAS.MC), Iberdrola (IBE.MC), PGE (PGEP.WA), Red Electrica (REE.MC), Terna (TRN.MI), ZE PAK (ZEEP.WA)

J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2013

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 44% 44% 12%IB clients* 53% 46% 34%

JPMS Equity Research Coverage 42% 49% 9%IB clients* 71% 62% 51%

*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com , contact the primary analyst or your J.P. Morgan representative, or email [email protected].

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Europe Equity Research18 January 2013

Javier Garrido(34-91) [email protected]

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"Other Disclosures" last revised January 1, 2013.

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