Morningstar | Endesa Releases 2018 Earnings and Dividend Above Expectations; Shares Overvalued
We reiterate our fair value estimate of EUR 19 per share along with our no-moat, stable trend ratings after Endesa released 2018 results slightly above expectations and reiterated its short- and medium-term guidance. We view the shares as overvalued. We foresee the dividend to decrease in 2020 and 2021 due to a decline in net income that we forecast and planned reduction in the payout ratio. We prefer parent company Enel, whose dividend floor through 2021 guarantees a 9% annual growth.EBITDA increased by 3% to EUR 3.63 billion, above our and consensus EUR 3.52 billion. The main positive driver was the liberalized business where EBITDA grew 17% to EUR 1.2 billion, above our EUR 1.1 billion estimate. Electricity unitary margin increased by 27% to EUR 25.5/megawatt hours, or MWh, mainly because of an increase in unitary revenue from EUR 60.1/MWh in 2017 to EUR 67.1/MWh, above our estimates, and a rebound in hydro after the 2017 drought. Going forward, we forecast the division's profitability to increase through 2021 on increasing achieved power prices and renewable capacity, albeit below the group's targets, as we see underlying commodity assumptions as too bullish. Regulated business EBITDA increased by 4% to EUR 2.06 billion, in line with our estimates due to distribution networks' growth. We forecast flattish EBITDA through 2021 for the division, in line with the group's business plan, as cut in regulated returns in 2020 will be offset by increases in other revenue and efficiencies.
Net ordinary net income increased by 4% to EUR 1.5 billion, above our EUR 1.45 billion estimate, due to the upside at the EBITDA level. The 2018 dividend is set at EUR 1.427 per share, based on a 100% payout, well above our EUR 1.37, due to the net income upside. Endesa reiterates its 2019-21 EBITDA and net income targets. We are below them in 2020 and 2021 due to our downside for the liberalized business mentioned above.
Endesa is engaged in the production, transmission, distribution, and supply of electricity, through hydroelectric, fossil fuel, and nuclear generation. Co. is also engaged in the mining of coal for use in its fossil-fuel electric plants; mining research; land restoration, and environmental monitoring and control.
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