Iberdrola Earnings: Tariff Collection a Tailwind for Beating Expectations

We are currently maintaining our fair value estimate of EUR 10.60 for no-moat Iberdrola IBE after the firm released first-quarter results above expectations. We currently view shares as fairly valued.

EBITDA was up nearly 38% to EUR 4.06 billion, well above consensus of EUR 3.80 billion, and net income also grew approximately 40% versus the first quarter of 2022 to EUR 1.49 billion. The network business and energy production and customers segment saw EBITDA growth of 4.5% and 77.4%, respectively.

The energy production and customers business’ high growth was driven by the collection of the U.K. tariff deficit, which hit the fourth quarter of 2022, as well as normalizing prices and production in the European Union. Spain also saw strong renewables net production growth, up over 40% as hydropower production rebounded after a rough year in 2022, and EBITDA grew 113.5%.

The network business’ EBITDA growth was more muted as storms, lower transmission asset contributions, and higher costs for external services weighed on the segment in the United States and United Kingdom.

Management increased its 2023 net profit guidance growth from a mid-single-digit rate to a mid- to high-single-digit rate. Toward the end of April, Iberdrola’s Brazilian subsidiary Neoenergia agreed to sell half of its own subsidiary Neoenergia Transmissora to Warrington Investment (controlled by GIC) for BRL 1.2 billion.