Company Reports

We are maintaining our EUR 7.50 fair value estimate after Enel released final 2023 results, including EBITDA and net income that were in line with revised upward November guidance.

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.

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.

We confirm our EUR 7.50 fair value estimate after no-moat Enel released its 2024-26 financial targets based on cost of debt assumptions that remain too upbeat, in our view. Enel also slashed its renewables investments while upping grid ones, emulating Iberdrola’s shift announced in November 2022. The shares look undervalued with an attractive dividend yield of nearly 7%.

No-moat Enel released 9-month results that were slightly above company-compiled consensus and raised its 2023 guidance, mostly due to capital gains from the ongoing EUR 21 billion asset disposal plan, confirming our view that it is value-accretive. We maintain our EUR 7.50 fair value estimate and see the shares as undervalued. The firm will hold its annual capital markets day on Nov. 22, the first under the tenure of top management appointed in May 2022.

Enel has been suffering from high leverage stemming from the acquisition of Endesa at the top of the cycle in 2008. Sovereign debt crises in Spain and Italy and economic doldrums in these countries led to the implementation of adverse regulation for utilities. After 2014, the regulatory and economic backdrop in Enel’s core markets stabilised, and a new strategy aiming to boost organic growth and streamline the group organisation was implemented. Management reduced costs while increasing growth investments in regulated networks and renewables and strengthened control of its fastest-growing Latin America and renewables businesses by delisting Enel Green Power in 2016 and buying out Latin America activities from its subsidiary Endesa.

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.

No-moat 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.

Enel has been suffering from high leverage stemming from the acquisition of Endesa at the top of the cycle in 2008. Sovereign debt crises in Spain and Italy and economic doldrums in these countries led to the implementation of adverse regulation for utilities. After 2014, the regulatory and economic backdrop in Enel’s core markets stabilised, and a new strategy aiming to boost organic growth and streamline the group organisation was implemented. Management reduced costs while increasing growth investments in regulated networks and renewables and strengthened control of its fastest-growing Latin America and renewables businesses by delisting Enel Green Power in 2016 and buying out Latin America activities from its subsidiary Endesa.

No-moat Enel released good first-quarter results, in line with the consensus it polled, and maintained its 2023 guidance. We should tweak upward our EUR 7.2 fair value estimate on the incorporation of recent disposals at high multiples. This will leave a good upside to the current share price.

We confirm our EUR 7.20 fair value estimate for no-moat 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.

We don't expect to materially change our EUR 7.20 fair value estimate after no-moat Enel released final 2022 results including net income, which exceeded guidance. Otherwise, there was no surprise in this print since EBITDA and net debt had been released at preliminary results on Feb. 13. As expected, the dividend on 2022 results will amount to EUR 0.4; this is 4% above the year before and implies a 7.5% yield reflecting undervaluation of the shares.

We maintain our EUR 7.20 fair value estimate after no-moat Enel released 2022 preliminary results including EBITDA above FactSet consensus, but in line with our expectations. Net debt was strongly reduced in the fourth quarter, as we expected. This is positive for the equity story as ballooning net debt over the first nine months of the year while interest rates were soaring had fueled market jitters. The dividend yield of 8% reflects that the shares are still undervalued after their rally, driven by the stabilization of Italian government bond yields since last October.

We maintain our EUR 7.20 fair value estimate after no-moat Enel announced that it entered into exclusive negotiations with Greek utility PPC for the potential disposal of its Romanian business. Upon completion of due diligence to be carried out during the exclusivity period and ending at the end of January 2023, PPC's board of directors will determine whether it will submit a binding offer to Enel. Enel shares are undervalued after their rally, driven by the decrease in Italian government bond yields from their mid-October peak. However, we see more appealing earnings momentum in undervalued RWE and Engie.

We confirm our EUR 7.20 fair value estimate after no-moat Enel confirmed its 2022-24 financial targets based on cost of debt assumptions that we see as too upbeat. Whereas we expected a cut, Enel maintained its dividend thanks to a massive disposal plan. The shares look undervalued in line with most European utilities we cover, but we see more appealing earnings momentum in undervalued RWE and Engie.

We maintain our EUR 7.20 fair value estimate after no-moat Enel released weak third-quarter earnings, albeit in line with the consensus it polled, and lowered its 2022 net income guidance. Net debt continued to balloon above expectations, but the firm slightly improved its full-year target. Enel will pay a 2022 dividend of EUR 0.40 per share, in line with its guidance and involving an 8.8% yield.

Down by 40% year to date, Enel is the worst-performing European utility we cover. For a large part, this underperformance was driven by the steep rise in Italian government bond yields.

Enel has been suffering from high leverage stemming from the acquisition of Endesa at the top of the cycle in 2008. Sovereign debt crises in Spain and Italy and economic doldrums in these countries led to the implementation of adverse regulation for utilities. After 2014, the regulatory and economic backdrop in Enel’s core markets has stabilised, and a new strategy aiming to boost organic growth and streamline the group organisation has been implemented. Management reduced costs while increasing growth investments in regulated networks and renewables and strengthened control of its fastest-growing Latin America and renewables businesses by delisting Enel Green Power in 2016 and buying out Latin America activities from its subsidiary Endesa.

As the energy crisis deepens, an emergency meeting between European Union energy ministers will be held on Sept. 9. A key topic will be the implementation of a power price cap to funnel nongas power producers' windfall profits to consumers. According to the Financial Times, the European Commission is mulling a cap of EUR 200 per megawatt-hour.

We maintain our EUR 8 fair value estimate after no-moat Enel released weak second-quarter earnings but confirmed its 2022 guidance and dividend of EUR 0.4, implying a 8% yield. Its 2022 P/E is 8.7, and shares appear grossly undervalued.