Iberdrola: Flagship qualities at a tugboat price
We are updating our Iberdrola forecasts after 3Q18 results, while also incorporating new estimates for the Spanish pool price, revising our FX assumptions and rolling over our FV to 2019. The overall net effect of the changes results in a revision of our FV to Eur7.6/sh (Eur+0.1/sh vs previous), as the positive effect from the roll-over was offset by negative adjustments in some liberalized and wind areas and in debt components. Iberdrola has, in our view, the most balanced asset mix among Iberian integrated utilities. It combines earnings visibility (76% of EV from regulated activities Networks and Renewables) with growth, as we expect Rec EPS/DPS 18E-22E CAGRs of +4%/5%. The company is undertaking a major investment plan in regulated areas, so headline FCFE/dividend coverage metrics appear poor. However, excluding growth capex (mostly for regulated areas) and asset sales, the avg 18E/22E FCFE yield would be >9%. With a 19E DY of 5.6% and a 19E P/E of 13.0x, we see Iberdrola as one the best investment options in the Iberian utilities space. It may be a consensus bullish call, but rightly so we think. We reiterate our Silver Bullet Buy rating here, backed by 21% upside to our newly revised FV of Eur7.6/sh.Iberdrola is a holding company. Through its subsidiaries, Co. operates in four segments: network business, which includes all the energy transmission and distribution activities, and other regulated activity originated in Spain, the U.K., the U.S. and Brazil; deregulated business, which includes electricity generation and sales businesses as well as gas trading and storage businesses carried on by Co. in Spain, Portugal, the U.K. and North America; renewable business, with activities related to renewable energies in Spain, the U.K., the U.S. and the rest of the world; and other businesses, including the engineering and construction businesses and the non-power businesses.
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