EDP Renovaveis Earnings: Boosted by Asset Rotation Gains; Shares Undervalued

No-moat EDP Renovaveis EDPR released third-quarter results that were above company-compiled consensus on the bottom line. We maintain our EUR 21 fair value estimate. The shares have been excessively sold off because of rising interest rates. We believe the market neglects supporting factors like high power purchase agreement prices, declining construction costs for solar, and attractive pricing of asset rotations.

The top line fell 5% for the first nine months and 15% for the third quarter. The achieved power price declined 7% year on year, worsening from the first half’s 4% decline due to a higher comparison basis. Sequentially, the achieved power price slid only 1% to EUR 61.70 per megawatt-hour. The power output over the first nine months increased by 3%, thanks to new capacity. This marks a strong improvement from the first half’s 10% fall on the back of unfavorable wind conditions in the United States.

Nine-month EBITDA decreased 4% to EUR 1.43 billion, in line with consensus, improving from the first half’s 23% drop thanks to a 33% jump in the third quarter. The latter was boosted by capital gains of EUR 0.4 billion, nearly 140% above the year-ago quarter, from two deals in Spain and Poland at an attractive valuation of EUR 2.6 million per megawatt. Accordingly, the group raised its 2023 capital gains guidance for the second time in a row, from above EUR 0.3 billion to above EUR 0.4 billion, versus our EUR 0.38 billion estimate.

The group installed 0.8 gigawatt of capacity since the beginning of the year, of which 0.3 GW was in the third quarter. It lowered its full-year capacity additions guidance from around 3 GW to 2.5 GW in response to the postponement of 0.9 GW of U.S. solar projects to 2024 because of the Uyghur Forced Labor Prevention Act. Consequently, the group plans to install 4 GW in 2024. Overall, this is in line with our estimates for 2023-24.