Enel Earnings: Boosted by the Easing of the Energy Crisis, 2023 Guidance Confirmed, Shares Cheap

No-moat Enel ENEL released first-half results above the company-compiled consensus and confirmed its 2023 guidance. We maintain our EUR 7.5 fair value estimate and see the shares as undervalued.

First-half ordinary EBITDA increased by 29% to EUR 10.7 billion. It grew by 38% during the second quarter, accelerating from the first quarter’s 22% growth. Net profit increased by 56% to EUR 3.28 billion, exceeding the consensus by 11%.

In line with the first quarter, the main positive driver was the retail business. Its EBITDA surged 10 times thanks to declining sourcing energy costs in the wake of the easing of the energy crisis, whereas the year-ago semester was hit by a massive margin squeeze caused by spiraling sourcing costs. Renewables’ EBITDA jumped by 62%, accelerating from the first quarter’s 46%. Grid’s EBITDA increased by 14% in the first half, slowing down from the first quarter’s 30% growth. On the negative side, global generation and trading profitability in Italy dropped on lower power prices and volumes.

Enel maintained its 2023 guidance of a net ordinary income in a EUR 6.1 billion-EUR 6.3 billion range, well above our EUR 5.3 billion estimate that we will raise after this strong print. This will have a limited impact on our long-term estimates and valuation.

Net debt was EUR 62.2 billion at the end of June, EUR 3.3 billion above the end of March and EUR 2.1 billion higher than at year-end 2022 as operating cash flows were too low to fund investments and dividends. The pending EUR 5 billion cash proceeds from announced disposals will bring the net debt to EUR 57 billion.