Morningstar | EDP's Nine-Month Results in Line, Full-Year Guidance Confirmed; Shares Roughly Fairly Valued
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 nine-month results in line with expectations and reaffirmed 2018 guidance. Our fair value estimate is aligned with the takeover bid of CTG launched in May. The share price has been hovering above the bid before falling below it late September after more adverse regulatory news in Portugal. This reflects that the market refocused on challenging fundamentals and skepticism over the deal completion. However, EDP highlights that there are clear signals that CTG is moving forward with regulatory approvals in different countries where EDP operates, hinting it will not withdraw its offer.Recurring nine-month EBITDA decreased by 6% to EUR 2.4 billion, below our negative 4% for the full year, implying a 12% fall in the third quarter after negative 3% in the first half. The main driver of the deterioration was EDPR, whose EBITDA fell 33% after a 5% decline in the first half. It was hit by unfavorable wind conditions and lower average selling price. Also, comps were tough due to a farm-down in the third quarter of 2017. Those negative drivers more than offset capacity additions. Iberian networks' EBITDA decreased by 20% on the 2018 regulatory cut in revenue in Portugal, in line with our estimates. The negative exchange rate effect shaved 6% off EBITDA.
EDP reiterated its EBITDA and recurring net income guidance of EUR 3.4 billion and EUR 0.8 billion, respectively, both roughly in line with our EUR 3.37 billion and EUR 0.75 billion estimates. Reported net profit guidance of EUR 0.5 billion-EUR 0.6 billion is also maintained. It includes the provision that EDP booked in September on alleged overcompensation under the CMEC regime. In all, we do not expect to materially change our 2018 or long-term estimates after the results.
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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