Morningstar | EDP's First-Half Results Are Above Expectations; Full-Year Guidance Is Confirmed
We reiterate our fair value estimate of EUR 3.26 per EDP share, along with our no-moat and stable moat trend ratings, after EDP released first-half results above expectations and confirmed its full-year guidance. As a reminder, our fair value estimate is aligned with the takeover bid of CTG, which was launched in May. The share price is hovering above the bid, based on speculation that the offer price will be raised. In other words, the stock is driven by risk arbitrage and not by fundamentals.Recurring EBITDA decreased by 3% to EUR 1.74 billion in the first half, versus a 4% fall in the first quarter. Recurring net profit increased by 5% to EUR 457 million, boosted by lower financing costs. Reported net profit came in at EUR 380 million, 10% above expectations due to a low tax rate.
As expected, the key negative driver was Iberian networks, owing to adverse regulatory changes in Portugal. The negative exchange rate effect shaved 6% off EBITDA. Performance of EDPR deteriorated in the second quarter as EBITDA increased by 1% over the first half at constant currency, versus 6% growth in the first quarter. This is driven by less favorable wind conditions during the second quarter, offsetting capacity additions.
The main positive driver was generation and supply, which saw EBITDA increase 26% in the first half after flattish EBITDA in the first quarter. The key driver was the 85% surge in hydro production over the first half after a 37% increase in the first quarter, owing to the severe drought in 2017. EDP Brasil's EBITDA increased by 17% at constant currency, in line with the first-quarter performance.
EDP reaffirmed its full-year guidance of EBITDA and net profit of around EUR 3.4 billion and EUR 0.8 billion, respectively, roughly in line with our EUR 3.37 billion and EUR 0.75 billion estimates. Management guided for a 2018 tax rate below 20% during the conference call, returning to the higher norm beyond that. Accordingly we should tweak our 20% 2018 tax rate.
EDP Energias de Portugal is a utility company engaged as a generator, distributor and supplier of electricity in Portugal, and as an electricity generation company and a gas distributor in the Iberian Peninsula. In addition, Co. is a wind power operator with windfarms for energy generation in the Iberian Peninsula, the U.S., Canada, Brazil, France, Belgium, Italy, Poland and Romania and is engaged in developing wind projects in the U.K. Co. is also engaged in generating solar photovoltaic energy in Portugal, Romania and the U.S, and in Brazil it is engaged as an operator in electricity generation. As of Dec 31 2015, Co. had 9.7 million electricity customers and 1.4 million gas customers.
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