EDP Earnings: Slowed on Higher Comparison Basis, 2023 Guidance Set in Line With Expectations

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.

First-half recurring EBITDA grew 24% to EUR 2.5 billion. Looking at the second quarter, the EBITDA fell by 18% after doubling in the first quarter, chiefly because of a higher comparison basis. Recurring net profit jumped by 72% to EUR 0.5 billion as the EBITDA growth was supplemented by a reduction in noncontrolling interest reflecting lower EDPR’s net income.

Hydro, clients and energy management’s first-half EBITDA increased by 552% on better hydro conditions and cheaper sourcing costs in the wake of the normalization of wholesale gas and power prices. That said, growth slowed to 11% in the second quarter on a higher comparison basis, since the first quarter of 2022 was loss-making. Wind and solar’s EBITDA decreased by 23% in the first half and by 47% in the second quarter on lower achieved power prices and poor wind conditions in the United States, and, as of the second quarter of 2022, was boosted by EUR 0.1 billion of capital gains. Network’s first-half EBITDA decreased by 1%, decelerating from the first quarter’s 5% increase, notably because of overcontracting costs in Brazil.

EDP set is 2023 net income targets at EUR 1.1 billion, in line with consensus and our estimates and 27% above 2022.