Vistra (TXU Parent) To Grow Retail Business Through Dual Strategy Of M&A, Organic Growth

Vistra Energy, which as previously reported will engage in a strategy of expanding its retail business now that it has completed its acquisition of Dynegy, said during an earnings call this morning that it will pursue a "dual strategy" of organic retail growth and evaluating retail M&A opportunities.

Regarding potential retail acquisitions, Vistra CEO Curt Morgan said that, "We have to feel very confident in what we're getting, and we have to feel confident that we are getting a good value proposition."

"And that's not easy to do, looking at the retail companies that are out there," Morgan said

While much of the potential M&A focus will be on PJM where Vistra is now long on generation, Morgan did say that the company also has the ability to do a retail acquisition in Texas

Organically, Morgan said that Vistra will be "pretty aggressive" outside of ERCOT

Organic growth is seen by Vistra as a more cost effective approach of growing the retail business. Morgan noted that retail competitors have grown businesses organically to $100 million of EBITDA and 1 million customers in a period of 3-7 years, and said that Vistra can achieve the same growth

Morgan cited this organic growth, and being able to build a retail business that follows Vistra's approach for profitability, as preferable to, "acquiring something [in retail], paying a premium, and getting something that we're not even certain is a real solid business model."

Concerning retail organic growth in PJM, Morgan said that the company would focus on Illinois and Ohio, and also be "pretty aggressive" in Pennsylvania. Vistra will look at Massachusetts and Connecticut for retail organic growth as well

Morgan also said that Vistra has begun to "toe dip" in the battery world

Batteries are, "real", Morgan said, as the company, "think[s] there are some opportunities in ERCOT around batteries."

Morgan stressed any initial investment in batteries will be small, to get into the business, understand batteries, and their application in the markets in which Vistra operates.

Vistra Energy reported its Retail residential customer count as 1.476 million as of Q1 2018, up from 1.472 million as of Q4 2017, and compared to 1.478 million a year ago.

The Retail segment's business customer count (in meters) was about 206,000 as of March 31, 2018, up from 203,000 during Q4 2017, and 198,000 a year ago.

The acquisition of Dynegy closed after the close of the first quarter of 2018

Vistra's Retail segment reported Adjusted EBITDA of $194 million for the first quarter of 2018, compared to $177 million during the same period in 2017, with the increase driven by comparatively favorable weather and lower SG&A expenses.

For the three months ended March 31, 2018 (Q1 2018), net income for Retail was $771 million, $884 million higher than the first quarter of 2017, primarily due to unrealized gains on hedge positions with Vistra's wholesale segment driven by sharply rising ERCOT forward prices principally driven by higher market heat rates.

Operating revenue for the Retail segment for Q1 2018 was $972 million, versus $865 million a year ago

Retail segment volumes were 9,193 GWh for Q1 2018, up from 8,150 GWh a year ago, primarily driven by colder weather

Vistra listed its retail operational cost as $45/RCE