EUR 850.00 For Business Accounts Only

Morningstar | Enel shares offer growth at a reasonable price.

Enel has been suffering from high leverage stemming from the acquisition of Endesa at the top of the cycle in 2008. Sovereign debt in Spain and Italy has increased pressure on Enel's shares and bonds, and economic doldrums in these countries led to the implementation of adverse regulation for utilities, which hit Enel’s earnings. Altogether, the group slashed its dividend by more than 70% between 2008 and 2013. Since 2014, the regulatory and economic backdrop in Enel’s core markets has stabilised and a new strategy aiming to boost organic growth and streamline the group organisation has been implemented. Thus, the management team implemented cost-cutting measures and increased growth investments in regulated networks and renewables. The group strengthened control on its fastest-growing Latin America and renewables businesses by delisting Enel Green Power in 2016 and buying out Latin America activities from its subsidiary Endesa. On the bottom line, Enel has increased its dividend by 13% per year since 2014. The current 2018-20 business plan points to strong net income growth fueled by enhancing EBITDA in renewables and infrastructures and by efficiency gains from digitalization. We think the group’s targets are within reach, as the underlying commodity assumptions are cautious. EBITDA growth should boost free cash flow, enabling the group to increase its payout ratio to its target of 70% in 2018. In all, that should drive a 10% annual increase in dividend through 2022. A high-growth dividend could entice dividend seekers. Furthermore, high earnings growth and continuing simplification of the group organisation in Latin America, through reduction of the number of companies and minorities buyout, should drive a reduction of the historical discount to the sector average. In a nutshell, this implies appeal to value investors as well as growth investors.