EDP Renovaveis Earnings: EBITDA Growth Fully Offset by Rising Financial Costs

No-moat EDP Renovaveis EDPR released first-quarter net profit above consensus it polled while its EBITDA was bang in line. We will likely tweak our EUR 22 fair value estimate downwards to incorporate the recent rights issue. This will not leave enough margin of safety to make shares attractive at the current price.

The top line grew 24% in the first quarter to EUR 700 million thanks to an 11% rise in electricity output on new capacity and 11% increase in the average selling power price to EUR 62.5/megawatt-hours, supported by new power purchase agreements, hedging rollover, and indexation to inflation. That said, the achieved power price has decreased compared with the EUR 64.7/MWh of full-year 2022 due to the recent fall in market power prices. EBITDA grew by 14% to EUR 0.45 billion as top-line growth was mitigated by a 19% increase in operating costs due to power price clawbacks in Romania and Poland and a 10% expansion of the workforce. Share of profits from associates tumbled from EUR 44 million to EUR 8 million as lower power prices weighed on the profitability of the Moray East offshore wind farm.

Net profit was flat at EUR 65 million and above consensus’ EUR 55 million. EBITDA growth was fully offset by rising financial costs due to a rise in the cost of debt from 4% to 4.6%. This confirms our stance that pure renewables developers like EDP Renovaveis are the most exposed to rising interest rates.

Net debt was EUR 4.8 billion at the end of March, EUR 100 million lower than at end-2022 as low operating cash flows and the EUR 1 billion rights issue were almost fully absorbed by growth investments.