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Enel Earnings: Raises 2023 Guidance After Boost From Capital Gains; Shares Undervalued

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No-moat Enel 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.

Nine-month ordinary EBITDA increased by 29% to EUR 16.4 billion; it was boosted by EUR 0.8 billion of capital gains in the third quarter. Net profit jumped 67% to EUR 5 billion as EBITDA growth was complemented by a lower share of minority net income due to a positive mix effect.

In line with the first half, the main positive driver was the retail business. Its 9-month EBITDA surged almost 14 times due to declining sourcing energy costs in the wake of the easing of the energy crisis, whereas 2022 was hit by a massive margin squeeze caused by spiraling sourcing costs, especially during the third quarter. Renewables’ EBITDA jumped 69%, accelerated from 62% in the first half as third-quarter 2022 was hit by a severe drought in Italy. The grid segment’s nine-month EBITDA increased by 15% on regulated asset base growth and indexation to inflation in Italy and tariff increases in Latin America.

Enel raised its 2023 EBITDA guidance by EUR 1.3 billion to EUR 21.5 billion-EUR 22.5 billion and its net ordinary income by EUR 350 million or 6% to EUR 6.4 billion-EUR 6.7 billion. The latter’s midpoint is above our EUR 6.2 billion, which we will raise by incorporating capital gains. This won’t have an impact on our valuation since we already incorporate the cash proceeds of the disposals in our free cash flow forecasts.

The 9-month operating cash flow surged almost 10 times year on year to EUR 10.6 billion, due to a EUR 7 billion positive working capital swing versus 2022 when it was hit heavily by government measures.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Tancrede Fulop

Senior Equity Analyst
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Tancrede Fulop, CFA, is a senior equity analyst for Morningstar Holland BV, a wholly owned subsidiary of Morningstar, Inc. He covers European utilities.

Before joining Morningstar in early 2017, Fulop worked for Schlumberger Business Consulting as a financial and economist analyst. Previously, he was a senior research associate covering European utilities for Raymond James from 2011 to 2015.

Fulop holds a master’s degree in finance from the University Paris II Pantheon-Assas. He also holds the Chartered Financial Analyst® designation.

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