EUR 850.00 For Business Accounts Only

Morningstar | Endesa Raises Fiscal Year EBITDA Guidance on Strong Generation Margins; Shares Fairly Valued

We are maintaining our fair value estimate of EUR 18.30 and our no-moat and stable moat trend ratings after Endesa published nine-month results slightly above consensus expectations and raised its full-year EBITDA guidance, in line with our and consensus expectations. Shares look fairly valued. We prefer undervalued parent company Enel, whose organic growth potential is higher, owing to a large international footprint.

Nine-month adjusted EBITDA increased by 16% to EUR 2.8 billion. Growth accelerated to 23% in the third quarter from 12% in the first half. The main positive driver was the liberalized business whose EBITDA grew 23% at the end of September. Electricity unitary margin increased by 25% from EUR 20.4 per megawatt-hour to EUR 25.5 megawatt hours, mainly because of an increase in unitary revenue from EUR 60.1/MWh to EUR 65.8/MWh. Consequently, management raised its full-year target from EUR 22 to EUR 23/MWh, versus our EUR 22.5/MWh estimate. This is the main driver of the rise in full-year EBITDA guidance. This new unitary margin target implies deterioration to EUR 19-20/MWh in the fourth quarter due to higher thermal output. We will tweak our unitary margin to EUR 23/MWh but we see no reason to change our long-term unitary margin assumption of EUR 22/MWh. The distribution business' EBITDA increased by 10% at the end of September because of higher regulated revenue and operating-cost reduction.

The group increased its EBITDA guidance from EUR 3.4 billion to EUR 3.5 billion, in line with our and consensus' expectations. Still, the group left its EUR 1.4 billion net income guidance unchanged. Increasing our unitary margin to EUR 23/MWh will marginally increase our EBITDA to EUR 3.53 billion. Impact on our net income estimate of EUR 1.45 billion will be offset by higher financial costs because of higher debt than in our estimates.