Company Reports

We confirm our EUR 5 fair value estimate after no-moat EDP released first-quarter results in line with the FactSet consensus, confirmed its 2024 guidance, and cut its 2026 financial targets after its subsidiary EDPR did so on May 9. The dividend policy—based on a floor of EUR 0.195 in 2024-25 and EUR 0.20 in 2026 with a target payout of 60%-70%—is maintained. Current price/earnings and dividend yield of 11.7 and 5.4%, respectively, reflect the material undervaluation of the shares.

EDP is the European integrated utility with the largest weight of renewables, accounting for 60% of the group's EBITDA. They consist of EDP Renovaveis’ wind and solar assets chiefly located in the United States and Iberia and EDP’s hydropower assets in Iberia and Brazil. Renewables are the main growth driver due to the commissioning of new capacity. As the fourth-largest renewables player in the US through EDP Renovaveis, EDP is well positioned to benefit from the extension of production tax credits planned by the extension of the Inflation Reduction Act.

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 maintain our EUR 5.8 fair value estimate after no-moat EDP released solid 2023 results that were in line with guidance and set its 2024 recurring net profit guidance in line with our and FactSet consensus. The group will pay a EUR 0.195 dividend on 2023 results, in line with the 2023-26 strategic plan and implying a 5.3% yield. This is the first dividend increase since 2016. EDP is significantly undervalued despite an exposure to falling power prices that is below peers.

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.

With the U.N. Climate Change Conference, otherwise known as COP28, that started on Nov. 30, we are reasserting our view that the market underappreciates utilities' critical role in limiting global warming.

EDP is the European integrated utility with the largest weight of renewables, accounting for two thirds of the group's EBITDA. They consist of EDP Renovaveis’ wind and solar assets chiefly located in the United States and Iberia and EDP’s hydropower assets in Iberia and Brazil. Renewables are the main growth driver due to commissioning new capacity. EDP plans to install 12 gigawatts of net capacity between 2023 and 2026 or 3 GW per year. As the fourth-largest renewables player in the U.S. through EDP Renovaveis, EDP is well positioned to benefit from the extension of production tax credits planned by the extension of the Inflation Reduction Act.

We maintain our EUR 5.8 fair value estimate after no-moat EDP released solid nine-month results and raised its set 2023 net income guidance. Shares have been hit by the sell-off of subsidiary EDPR on rising interest rates. Consequently, EDP is the most undervalued integrated utility we cover despite having the highest earnings growth outlook.

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 5.8 fair value estimate after no-moat EDP released first-half results implying a slowdown in the second quarter and set 2023 guidance in line with our estimates and FactSet consensus. Shares are materially undervalued.

EDP is the European integrated utility with the largest weight of renewables, accounting for two thirds of the group's EBITDA. They consist of EDP Renovaveis’ wind and solar assets chiefly located in the United States and Iberia and EDP’s hydropower assets in Iberia and Brazil. Renewables are the main growth driver due to commissioning new capacity. EDP plans to install 12 gigawatts of net capacity between 2023 and 2026 or 3 GW per year. As the fourth-largest renewables player in the U.S. through EDP Renovaveis, EDP is well positioned to benefit from the extension of production tax credits planned by the extension of the Inflation Reduction Act.

EDP is the European integrated utility with the largest weight of renewables, accounting for two thirds of the group's EBITDA. They consist of EDP Renovaveis’ wind and solar assets chiefly located in the United States and Iberia and EDP’s hydropower assets in Iberia and Brazil. Renewables are the main growth driver due to commissioning new capacity. EDP plans to install 12 gigawatts of net capacity between 2023 and 2026 or 3 GW per year. As the fourth-largest renewables player in the U.S. through EDP Renovaveis, EDP is well positioned to benefit from the extension of production tax credits planned by the extension of the Inflation Reduction Act.

We maintain our EUR 6 fair value estimate after no-moat EDP released a good set of first-quarter results thanks to the recovery in hydro conditions after the severe drought of 2022. Shares appear undervalued.

We don’t expect to materially change our fair value estimate of EUR 6 for no-moat EDP after it announced an equity raise of EUR 1 billion to fund a tender offer for full ownership of subsidiary EDP Brazil.

We maintain our EUR 22 fair value estimate for no-moat EDPR and EUR 6 for its parent company, no-moat EDP, after the former said that the clawback mechanisms recently introduced in Romania and Poland could shave about one third of its 2023 net income. The slight rise of EDPR shares at time of writing shows that the impact was already priced in. Shares are in 3-star territory. On the other hand, buying undervalued EDP shares gives exposure to EDPR at a discount.

European utilities are the main winners of the first California floating offshore wind lease auctions held by the Bureau of Ocean Energy Management. The lease areas they won mean there is the potential for Equinor to develop around 2 gigawatts, 2 GW for Central California Offshore Wind (a joint venture between Canada Pension Plan Investment Board and Ocean Winds, itself a joint venture between Engie and EDP Renovaveis), 1.6 GW for RWE, 1 GW for Copenhagen Infrastructure Partners, and 1 GW for Invenergy, the only winning U.S. company.

EDP is the European utility with the second-largest weight of renewables (behind Orsted), accounting for two thirds of the group's EBITDA. They consist of EDP Renovaveis’ wind and solar assets chiefly located in the United States and Iberia and EDP’s hydro assets in Iberia and Brazil. Renewables are the main growth driver in our estimates due to the commissioning of new capacity and capital gains from asset rotations. EDP plans to install 12.5 GW of net capacity by 2025 or 2.5 GW per year, still less than 4 GW-6 GW planned by Enel, Iberdrola, or Engie but almost 3 times as much as 0.9 GW of the previous 2019-22 business plan. As the third-largest renewables player in the U.S. through EDP Renovaveis, EDP is well positioned to benefit from the extension of production tax credits planned by the extension of the Inflation Reduction Act.

We maintain our EUR 6 fair value estimate after no-moat EDP released nine-month results above the consensus it polled, confirmed its 2022 guidance. The almost nil implicit valuation of Iberian operations (by stripping out the market value of listed subsidiaries EDPR and EDP Brazil from EDP share price) reflects the significant undervaluation of the shares.

We reinitiate coverage on EDP Renovaveis with a no-moat rating and fair value estimate of EUR 22, implying a price/fair value of 1.1. The overvaluation reflects too-upbeat expectations on capacity additions beyond 2025, in our view. On the other hand, valuing EDP Renovaveis with a net present value enables us to fully capture value of future projects—which leads us to increase our fair value estimate of parent company EDP by 20% to EUR 6 from EUR 5, involving a price/fair value of 0.83. All in all, buying EDP shares allows investors to get EDP Renovaveis at a discount.

EDP is the European utility with the second-largest weight of renewables (behind Orsted), accounting for two thirds of the group's EBITDA. They consist of EDP Renovaveis’ wind and solar assets chiefly located in the United States and Iberia and EDP’s hydro assets in Iberia and Brazil. Renewables are the main growth driver in our estimates due to the commissioning of new capacity and capital gains from asset rotations. EDP plans to install 12.5 GW of net capacity by 2025 or 2.5 GW per year, still less than 4 GW-6 GW planned by Enel, Iberdrola, or Engie but almost 3 times as much as 0.9 GW of the previous 2019-22 business plan. As the third-largest renewables player in the U.S. through EDP Renovaveis, EDP is well positioned to benefit from the extension of production tax credits planned by the extension of the Inflation Reduction Act.