First: some comments on the list of Fortum being one of the least risky investments in Finland.
My comment: these kind of lists are borderline ‘criminal’ in my world.
Let me give an example. In 2011 when the Fukushima disaster happened I invested in EON. My analysis of the company looked at the numbers of the company and I viewed these numbers as attractive and assumed that this is rather safe bet. The problem was that I did not consider these numbers from a German political context. I was naive not considering in my analysis the political landscape of Germany where the green party and the green views in general are strong. I had not in my wildest dreams seen that a tsunami in Japan will end up in that Germany closes their nuclear power plants.
This German decision done by Merkel is still haunting energy policy in the EU, as Germany is now sucking up the energy demand across Europe: buying nuclear power from France, and amongst other hydro from the Nordics, which results in extreme situations like we have now in the energy market too push up energy prices to the stratosphere (the push for the green energy transition does not either help).
This example has thought me to always look behind the economical numbers of a company. Especially in sectors that are politically sensitive. Also, this example has probably given me a negative bias relative to the energy sector in particular.
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Then some comments on PorssiPatruuna’s excellent viewpoints:
The most interesting aspect I view is the regulation discussion, where we have different views.
I fully agree that the regulation setting can also provide opportunities and in Fortum’s case have probably given the company a form of a ‘moat’ relatively to other company in the sense that there are barriers for other to entry the market and that Fortum will stand to benefit from the green EU energy transformation in the future.
In my analysis regulation is more viewed as a burden which is highlighted by Fortum geopolitical scope of activities. Fortum has chosen to operate in Russia and with the acquisition of Uniper has decided to also engage in the German political and corporate landscape, which I view as one of the worst to operate an energy company in Europe.
In Germany one does not only have to deal with irrational political decisions but also weird corporate laws and union representation in board rooms etc.
This is not to state that Fortum cannot navigate these and be one of the future winners. But as this current energy crises has shown in Europe the future green energy transition is difficult to navigate for energy companies. Look what has happened in UK and in Spain, where energy companies has been capped in terms of how much they can charge their customers in extreme times and putting themselves to risk.
To sum up:
Individual investors need to understand to (politically) contextualize the economic numbers in particular of energy companies. Yes, all sectors are regulated, but the energy sector stands out of being politically sensitive with irrational behavior.
Again, this is just my view, and my judgment is biased by my own negative experiences so consider this when reading my text.
