Share Plan Casts Cloud Over Areva

                                                                                         

Areva, the world's largest builder of nuclear reactors, is heading for a market setback if President Nicolas Sarkozy carries through on a plan to sell shares in the company in early 2008. Speculation about a buyout or a merger with Alstom, another French company and the biggest maker of coal-fired power plants, has helped drive a 32 percent rise in Areva's nonvoting certificates this year. So has an increase in the spot price of uranium, which hit $138 a pound in June.
The Areva securities represent less than 5 percent of the company's capital and are trading at 37 times estimated earnings. Five of nine analysts who cover the company recommend selling before the shares are diluted in an expanded pool of investors. Two analysts say "hold" and two have "buy" recommendations.
"Areva's certificate is largely overpriced, disconnected from the company's fundamental value given its current contracts and midterm prospects," said Clemence Bounaix, an investment manager at Richelieu Finance in Paris, which has sold most of the its Areva certificates. "Investors are playing a very bullish scenario in a long-cycled industry." Many of Areva's anticipated orders have yet to materialize and prospects over the next five to 10 years do not justify its price- earnings ratio, Bounaix said. The certificates fell euro 25.53, or 3.3 percent, to close at euro 743.19 in Paris on Wednesday. Analysts' average target price is euro 655, or 12 percent less than the current price.
Two years ago, Dominique de Villepin, then the prime minister, scrapped a plan to sell Areva shares. Sarkozy may revive the sale because the government needs euro 5 billion, or $7.2 billion, to dismantle old nuclear labs and the power plant builder wants to invest a like amount in mining assets and in hiring engineers. Sarkozy in September asked the Finance Ministry to review all options for Areva, a state-owned company. HSBC Holdings is advising the ministry. The Commissariat [dagger] l'Energie Atomique, the government nuclear agency, hired Goldman Sachs in October to advise on a possible sale of the 79 percent stake comprising the bulk of the government's 93.4 percent holding.
A decision will be made in the first quarter, the finance minister's chief of staff, Stephane Richard, said this month. The issuance of 7.6 million new shares to raise euro 5 billion for Areva at the average analyst target price may dilute the existing certificate holders' stake by 20 percent. Shares of Areva's competitors, which are more diversified, are less costly than Areva's certificates. General Electric trades at 17 times earnings and Toshiba at 19 times. Areva, which gets 5 percent of its revenue from mining uranium, is also more expensive than mining companies like Cameco, the Canadian company whose shares sell for 26 times net profit, or Rio Tinto Group, at 19.
Areva's certificates have doubled in the past two years as more countries consider nuclear power to meet growing demand for electricity and find alternatives to expensive oil and air- polluting coal. The securities also have gained on their scarcity and on speculation about a government-brokered combination with Alstom or the sale of a stake to companies led by the French construction group Bouygues or Total, the French oil company. "The market isn't properly valuing the risks of the industry," said Pierre Boucheny, a Kepler Landsbanki analyst who has a "sell" rating on the certificates. "Investors get excited about Areva because it's the only listed nuclear specialist and because of speculation over a merger."

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Velimir Lackovic runs internet portal "Energetika" ( http://www.energetika.co.yu )
dedicated to renewable energy sources,oil gas and energy efficiency. Velimir has
completed gratuadte studies in power systems engineering and
has industry experiance of over 20 years in this field.

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