EDP Renovaveis Earnings: As Firm Faces Poor Wind Conditions, Shares Are Undervalued

No-moat EDP Renovaveis EDPR released second-quarter results hit by unfavorable wind conditions in the U.S. The net profit was above the company-compiled consensus thanks to a positive one-off. The firm sold wind assets in Spain at an attractive price. All in all, we maintain our EUR 21 fair value estimate and see shares as attractive.

The top line fell by 1% over the first half and by 22% during the second quarter, sharply deteriorating from the first quarter’s 24% growth. This was chiefly because of a 10% decline in the power output due to very unfavorable wind conditions in the U.S. because of a strong El Nino effect that largely offset additional capacity. The achieved power price declined by 4% over the semester to EUR 62.5 per megawatt-hour. It was unchanged compared with the first quarter. First-half EBITDA came in at EUR 0.75 billion, decreasing by 23% during the first six months of the year and by 47% during the second quarter. The top-line decline was supplemented by rising operating costs due to the clawbacks in Romania and Poland, higher staff costs due to inflation and increasing headcount, and incremental costs related to delays in the commissioning of capacity in Colombia and the U.S. Finally, the year-ago semester was boosted by EUR 0.1 billion of capital gains.

On July 25, EDPR sold 257 megawatts of wind assets in Spain to Verbund for an enterprise value of EUR 0.46 billion, implying an attractive EV/megawatt of EUR 1.8 million. Consequently, the firm raised its 2023 capital gains guidance from around EUR 0.3 billion to above EUR 0.3 billion. We expect EUR 0.375 billion of capital gains.

First-half net profit tumbled by 70% to EUR 80 million but was twice as high as the consensus due to a positive accounting one-off.

The group installed 0.5 gigawatts of new capacity in the first half and confirmed its guidance of around 3 GW of new capacity in 2023, in line with our estimate, adding that they will be backloaded.