Expected positive news flow overshadowed by slumping electricity prices (downgrade to Hold)

- Decline in CO2 prices followed by slump in electricity prices. The markets anticipate a rejection of the plan to withhold some CO2 permits. Falling electricity prices have a deep impact on Verbund’s valuation.

- Target price cut to EUR 16.1, recommendation Hold instead of Buy. Incorporating the current electricity price prompts us to cut Verbund to Hold and to set our new target price at EUR 16.1 (from EUR 19.6).

- 2012e and 2013e to come in strong. We increase our EPS estimates for 2012e due to an outstanding water supply in 4Q12. We expect the company to easily beat its latest guidance. 2013e will be strongly supported by the asset swap with E.ON. Positive one-offs should lift the bottom line by EUR 1.4bn.

- 2014e and subsequent years to be burdened by low electricity prices. For 2014e, we have significantly cut our EPS estimates, from EUR 1.42 to 1.12. The actual price curve of futures on the EEX does not indicate significant relief in the coming years. However, investors should carefully follow any future discussions on backloading. A decision to postpone CO2 permits would have an immediate positive impact on Verbund share.