Company Reports

While wholesale power prices stabilized, government bonds’ yields fell on weak economic indicators and lower inflation in the US and Europe. Second-quarter results were boosted by very favorable hydro conditions that led to some guidance upgrades. This goldilocks scenario bolstered a rally in European utilities, enabling them to massively outperform the market and recover much of their earlier underperformance.

We confirm our EUR 16.50 fair value estimate after no-moat Redeia released first-half results in line with expectations and confirmed its 2024 guidance. Shares look fairly valued.

Utilities have reversed part of their first quarter’s fall, thanks to a strong rebound in power prices. Moreover, the deep undervaluation of renewables developers has driven takeovers by big investment firms at very high multiples. Neoen’s main shareholders accepted an offer at 18 times the EBITDA. The sector is still significantly lagging the market in 2024 because of high interest rates. Should they fall, it would boost the sector.

We confirm our EUR 16.50 fair value estimate after no-moat Redeia released first-quarter results, which were hit by the end of the remuneration of transmission assets commissioned before 1998, as expected. Guidance for 2024 was confirmed. Shares look undervalued.

Redeia's fully regulated electric transmission business has protected the company from the doldrums faced by most diversified European utilities between 2011 and 2016. During the 2014-19 regulatory period, Redeia has delivered 7% annual dividend growth.

European utilities have reversed their outperformance in the fourth quarter of 2023 because of a fall in wholesale power prices in the wake of gas prices after a very mild winter, and a pickup in interest rates due to inflation receding more slowly than expected. The former led to some of the companies, most exposed to power prices, cutting their guidance for 2024.

We are currently maintaining our fair value estimate of EUR 16.50 for no-moat Redeia as we roll our model to incorporate fiscal full-year results. The group will pay a EUR 1 dividend on 2023 results, in line with last year and implying a 6.8% yield. The dividend floor of EUR 0.8 over 2024-25 is reiterated. It involves a 5.4% yield, reflecting the undervaluation of the shares.

European utilities are up by 14% year to date, slightly underperforming the broader European markets. Since the end of September, the sector strongly outperformed thanks to the rally in government bonds and solid third-quarter results that drove multiple guidance upgrades although growth slowed down from the second quarter due to higher comps. All in all, companies that are the most exposed to commodity prices are set to exceed their 2022 record profits in 2023. Meanwhile, firms with big retail businesses that were hit by a margin squeeze because of the energy crisis in 2022 will post a significant rebound in earnings.

We maintain our EUR 16.50 fair value estimate after no-moat Redeia released tepid nine-half results reflecting the less favorable regulatory environment in Spain compared with most Western European countries. Nonetheless, this seems to be excessively priced in. Redeia largely confirmed its 2023 targets, aiming for transmission investments above EUR 700 million, EBITDA above EUR 1.5 billion, and net profit in line with 2022. Shares appear undervalued.

European utilities have underperformed the European market by 4% year to date with most of the underperformance occurring in the third quarter because of the rise in interest rates. This overshadowed strong second-quarter results driven by the easing of the energy crisis, persisting commodity price volatility, and the hedging improvement. These drivers have persisted in the third quarter. Moreover, some power price clawbacks expired at the end of June like in Germany and Belgium. On the flip side, the comparison basis will be tougher as of the third quarter.

We maintain our EUR 16.50 fair value estimate after no-moat Redeia released first-half results that were in line with FactSet consensus. Redeia largely confirmed its 2023 targets, aiming for transmission investments above EUR 700 million, EBITDA above EUR 1.5 billion, and net profit in line with 2022. Shares appear undervalued.

We are maintaining our EUR 16.50 fair value estimate for no-moat Redeia. The group's first-quarter EBITDA was roughly in line with consensus expectations at EUR 401.8 million, up 1.6% year over year, but net income declined just under 1% versus the first quarter of fiscal 2022 as the sale of 49% of Reintel in June 2022 increased noncontrolling interests. We currently view the shares as fairly valued.

Redeia's fully regulated electric transmission business has protected the company from the doldrums faced by most diversified European utilities between 2011 and 2016. During the 2014-19 regulatory period, Redeia has delivered 7% annual dividend growth.

We are currently maintaining our fair value estimate of EUR 16.50 for no-moat Redeia as we roll our model to incorporate fiscal full-year results. Redeia slightly missed PitchBook’s EBITDA median consensus of EUR 1,510 million for fiscal 2022 by ending the year with EUR 1,491 million. This was also a small decrease of 0.5% versus fiscal 2021 as the tariff orders reduced EBITDA by EUR 35 million in 2022.

Red Electrica's fully regulated electric transmission business has protected the company from the doldrums faced by most diversified European utilities between 2011 and 2016. During the 2014-19 regulatory period, Red Electrica has delivered 7% annual dividend.

We maintain our EUR 16.50 fair value estimate after no-moat Redeia released nine-month results in line with FactSet consensus. We view the shares of this regulated utility as slightly undervalued. The dividend for 2022 and 2023 of EUR 1 involves a 6.4% yield at the current share price. Redeia plans to cut the dividend to EUR 0.8 in 2024, which still implies a decent 5.1% yield. Still, in line with the 2023 dividend that the firm meant to cut, it is possible that the 2024 dividend will be maintained at EUR 1 given the lower leverage than peers.

We maintain our EUR 16.50 fair value estimate after no-moat Redeia (formerly Red Electrica) released first-half results in line with FactSet consensus. The surprise in this publication is that the group intends to pay a EUR 1 dividend in 2023, flat versus 2022, while a cut to EUR 0.8 was previously planned. Redeia justifies this incremental return to shareholders through the completion of the sale of a 49% stake in Reintel, its Spanish fibre-optic business, for EUR 1 billion. We commend the decision as Redeia appears underleveraged for a regulated utility. However, the company still plans a dividend cut in 2024. Although this might not happen, in line with 2023, the lack of dividend visibility puts Redeia at odds with other regulated European utilities we cover. Last, we see the shares as overvalued.

We maintain our fair value estimate of EUR 16.5 after no-moat Red Electrica released first-quarter results in line with expectations. The defensive nature of the Spanish regulated utility can look appealing in a very volatile environment. However, we would warn investors that under Spanish regulation, adjustments for inflation will occur only in the next regulatory period starting in 2026. In the meantime, there is a risk of margin squeeze although operating costs have been kept in check in the first quarter. Finally, the dividend policy is less attractive than renewables peers since the current EUR 1 dividend floor will be reduced to EUR 0.8-EUR 1 in 2023-25. Shares appear overvalued.

Red Electrica's fully regulated electric transmission business has protected the company from the doldrums faced by most diversified European utilities between 2011 and 2016. During the 2014-19 regulatory period, Red Electrica has delivered 7% annual dividend.

We don't expect to materially change our fair value estimate of EUR 15.5 per share along after no-moat Red Electrica released 2021 results slightly below FactSet consensus and reiterated its 2021-25 targets. The group will pay a dividend of EUR 1 on 2021 results, as expected. This implies a juicy 6% dividend yield. However, the dividend floor of EUR 1 through 2022 will be reduced to EUR 0.8 in 2023-25, implying a 4.8% yield. Also, we project flat EPS through 2025. This unappealing earnings outlook reflects the end of the remuneration of assets commissioned before 1998, due in 2024. Shares appear overvalued.