Naturgy: Tweaking Our Fair Value to EUR 25.70 After Firm Raised 2023 Guidance; Shares Fairly Valued

We tweak our fair value estimate for no-moat Naturgy NTGY to EUR 25.70 from EUR 25 on the time value of money since our last update and the rise in our 2023 EBITDA estimate after the group raised its guidance for the second time in a row. Shares look fairly valued.

EBITDA was EUR 4.3 billion at the end of September, 23% above last year. In the third quarter, EBITDA doubled, accelerating from the first-half’s 40% growth. Naturgy did not specify the drivers of its third-quarter performance, but we believe they were the same as those in the first half, namely liquefied natural gas and markets, thanks to a high spread between Henry Hub gas prices to which most of the group’s procurement contracts are indexed and European gas prices.

After the strong third quarter, Naturgy raised its 2023 EBITDA guidance from over EUR 5 billion to over EUR 5.4 billion. The latter involves a 24% fall in the fourth quarter, which looks conservative, although the year-ago quarter was boosted by skyrocketing gas prices. All in all, we raise our 2023 EBITDA estimate of EUR 5 billion to EUR 5.53 billion. but this does not affect our long-term estimates as we expect gas prices to normalize.