Enel: Selling Midstream and Downstream Peruvian Assets at Attractive Price

We confirm our EUR 7.20 fair value estimate for no-moat Enel ENEL after the group agreed on April 7 to sell its distribution, supply, and energy services businesses in Peru to China Southern Power Grid at an attractive price. The shares still appear undervalued after their rally since last October.

Subsidiary Enel Peru agreed to sell its stake in its distribution, supply, and energy services businesses for $2.9 billion, involving an enterprise value of $4 billion on a 100% basis, according to Enel, and an attractive 2022 enterprise value/EBITDA of 13.7 times by our calculations. This is well above the average EV/EBITDA multiple of 8 that Enel is aiming for in its EUR 21 billion disposal plan by 2024 and our 8.2 valuation of the group implied by our three-stage discounted cash flow model. This disposal will drive a net debt reduction of EUR 3.1 billion in 2023 and a capital gain of EUR 500 million, not included in ordinary results. The value creation compared with our implicit valuation of the assets is EUR 0.10 per share or 1.2% of our fair value estimate, which is immaterial. The net debt/EBITDA ratio will be reduced by 1 time.

This deal is part of the EUR 21 billion disposal plan over 2022-24 that the group announced at its November 2022 capital markets day to reduce its leverage and maintain its dividend. This plan is set to drive the exit from Romania, Peru, and Argentina. Upon completion of this transaction, Enel will still own and operate 2 gigawatts of power generation capacity, of which half is renewables. It completed EUR 5.9 billion of disposals in 2022. Combined with the agreement announced in March to sell the Romanian operations for EUR 1.3 billion, the sale of the Peruvian assets points to a net debt reduction of EUR 4.4 billion, or 36% of the EUR 12.2 billion targeted in 2023. In total, completed or agreed disposals already account for 50% of the total disposal plan.