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Vistra Energy CEO Says "Good Retail Portfolios" For M&A Getting Scarce

Says Any Retail M&A Would Need To Be "Very Compelling" In Near Term

Says A Few Attractive Retail M&A Opportunities May Be Out There, But Company Will Be Disciplined

Vistra Energy (TXU, Dynegy Parent) Reports Higher Retail Adjusted EBITDA

Vistra Reports "Strong Margins" In Retail Segment During Q2

Residential Customer Count Flat As of June 30, 2019 (Prior To Crius Acquisition Close)

Vistra: Near-Term Retail Margin Expansion Possible

August 2, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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Update: This story has been updated at 10:00 a.m. with a discussion of retail M&A, and public versus private ownership of the company. The story has also been updated throughout with additional details on retail margin and Adjusted EBITDA drivers (in the "Earlier" section)


During an earnings call this morning, Vistra Energy CEO Curt Morgan discussed the company's view on retail M&A

An analyst specifically asked about Vistra's interest in Just Energy, given Just Energy's previously announced strategic review.

Morgan noted that the company does not comment on specific potential M&A transactions, but did speak generally about the company's view on retail M&A

"We're not focused on any particular transaction that involves retail that would have a significant non-U.S. presence," Morgan said

"Are we interested in other potential [retail] opportunities? We are, but we would remain extremely disciplined," Morgan said, especially with where Vistra's stock price currently is, and the opportunity to deploy capital to stock buy-backs versus M&A

As such, a retail transaction would need to be, "very compelling," Morgan said

"I would say there are a few [retail] opportunities that may be out there that are attractive, and we'll see what happens," Morgan said, again stressing that the company needs to be "really careful" on M&A

Morgan did reiterate that Vistra does desire, over the next two to four years, to have a generation-to-load match that is about 70% (currently the company is approaching 60%), though Morgan noted that reaching this goal will already be aided without adding load, due to several expected coal retirements

So Morgan said that he would not be surprised if over the next few years the company does do something on the retail side

Morgan said that the "good portfolios" in the retail space, "are getting more scarce," so if a retail opportunity came around, the company would have to take a look, just because of such scarcity, "but we're going to be disciplined about it."

Morgan said that the company still likes to be somewhat long on generation, especially in ERCOT, from both a risk management standpoint and an opportunistic standpoint, given that, with an energy-only market, there are going to be periods of tight conditions

Discussing investors' valuation of the company, when asked by an analyst about taking the company private due to investors' current valuation of the company through its current stock price (which has been depressed ostensibly due to low commodity prices), Morgan said that he believes that the company can be properly valued as a public company.

However, if such valuation realization does not occur and the public markets do not embrace the company, the company will have to consider alternatives to unlock value, Morgan said. Morgan said that he didn't know if such alternatives would necessarily include taking the company private, or other alternatives, but various alternatives would need to be looked at, he said


Vistra Energy, the parent of various retail energy suppliers including TXU Energy and Dynegy, reported Adjusted EBITDA for its Retail segment of $293 million for the second quarter of 2019, up from $260 million a year ago

Vistra closed on its acquisition of Crius Energy after the close of the second quarter. As such, results from Crius are not reflected in Vistra's second quarter results.

Vistra reported, "higher retail gross margin from seasonal shaping of power costs," quarter-over-quarter

In a 10-Q, Vistra said that the retail segment delivered "strong margins" during the second quarter of 2019

Vistra further said that the increase in Retail segment Adjusted EBITDA during the second quarter of 2019 was, "driven by ERCOT margins"

More specifically, Vistra said that the increase in Retail segment Adjusted EBITDA, versus the year-ago, was driven by the following factors:

Retail Adjusted EBITDA Change Versus 2Q 2018

Favorable margins in ERCOT 
    primarily due to favorable 
    power prices:                 $ 66  million

Favorable margins in Midwest/NE:  $ 11  million

Unfavorable weather in ERCOT      $(38) million

Other                             $ (6) million

Total                             $ 33  million

As of Q2 2019, Vistra's residential customer count was 1.528 million, flat versus Q1 2019, and compared to 1.540 million a year ago.

A pro forma Q2 2019 Vistra residential customer count when including the customers acquired from Crius after the close of the quarter is 2.028 million, with about 500,000 residential customers added from Crius. The residential customer counts described herein are direct-to-consumer counts and exclude municipal aggregation customers

Concerning its retail business, Vistra reported, "continued strong sales performance in [the] business markets segment."

Vistra said of the retail business that, "Near-term margin expansion [is] possible with wholesale power price declines."

However, the company said that, "Longer-term, competitive market dynamics typically move retail revenue rates in the direction of the underlying commodity." Vistra further said that, "Retail providers attempting to maintain higher margins during periods of sustained Y-o-Y wholesale price declines risk meaningful customer attrition."

"Even integrated companies are exposed to long-term commodity price volatility," Vistra said, adding that, "Integrated longer term hedging of retail-wholesale difficult to expand margin; possible with long wholesale position"

Concerning its retail business, Vistra also cited its, "[a]bility to grow retail organically through new brands and M&A – leverag[ing] capabilities and scale for highly attractive returns."

Q2 2019 Vistra retail volumes were 16,706 GWh (4,863 GWh residential, 9,253 GWh business, and 2,590 GWh muni aggregation). Q1 2018 Vistra retail volumes had been 17,180 GWh.

Lower retail volumes were driven by mild weather, and were, "largely offset by margin performance," the company said

As previously reported, Vistra completed the acquisition of the Crius Energy business on July 15, 2019.

"Vistra believes this acquisition expands Vistra into higher margin channels outside of ERCOT, improves Vistra's generation-to-load match to approximately 48 percent, an approximately 12 percent increase since the Dynegy merger, and creates a platform for future growth," the company said

Vistra estimates that the Crius portfolio will contribute approximately $50 million to its Ongoing Operations Adjusted EBITDA in 2019.

On a net income basis, Vistra's retail segment reported a loss of $585 million, versus a year-ago loss of $288 million, with the results reflecting unrealized net losses resulting from hedging transactions

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