EUR 850.00 For Business Accounts Only

Morningstar | Endesa Delivers First-Half Results In Line With Expectations; Shares Overvalued

We maintain our fair value estimate of EUR 18.30 and our no-moat, stable trend ratings after Endesa published half-year results in line with consensus expectations and reiterated its full-year guidance, which is in line with our estimates. Shares look overvalued, and we prefer undervalued parent company Enel, whose organic growth potential is higher, owing to a large international footprint.

EBITDA increased by 12% in the first half of the year after a 25% rebound in the first quarter, implying 2% growth in the second quarter due to stronger comps in the liberalised business. Both the liberalised and regulated businesses contributed to EBITDA growth in the first half. Net income increased by 15% to EUR 752 million.

The liberalised business' EBITDA grew 26% in the first half. Electricity unitary margin increased by 19% from EUR 21.4 per megawatt-hour to EUR 25.4/MWh, mainly due to an increase in unitary revenue from EUR 61.9/MWh to EUR 64.5/MWh, which more than offset the increase in variable cost. During the conference call, management mentioned that unitary margin should deteriorate to EUR 20/MWh in the second half due to higher variable costs. Over the full year, management guides for a unitary margin of EUR 22-EUR 23/MWh versus our EUR 22/MWh estimate. This slight upside on the unitary margin should be offset by lower electricity sales than on our estimates. Volumes decreased by 6% in the first half versus our 1% growth assumption for the full year.

The distribution business' EBITDA increased by 8%, implying an acceleration in the second quarter after the 6% increase delivered in the first quarter. We expect EBITDA to decrease throughout the rest of the year, owing to stronger comps, as second-half 2017 was boosted by significant one-offs.