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Morningstar | Enel Americas Reports Solid Results Against a Backdrop Of Inflationary Economies

We are reaffirming our fair value estimate of $10 per ADR after Enel Americas reported solid results for the nine months ended Sept. 30, of $0.45 per ADR versus $0.33 per ADR in the year-ago period. Nine-month EBITDA increased 11% versus the same period last year, to almost $2.4 billion, and management believes it will be close to its full-year EBITDA guidance of $3.7 billion. Our 2018 EBITDA estimate of approximately $3.5 billion is unchanged.

We are reaffirming our 2018 and 2019 EPS estimates of $0.67 and $0.63, respectively. However, our level of confidence in these estimates is modestly reduced because of the currency devaluations in Brazil and Argentina. IFRS regulations consider Argentina a hyperinflationary economy and requires the closing exchange rate be used to convert results from Argentinian pesos to U.S. dollars instead of the average exchange rate during the period. Even with this backdrop of inflationary pressure, Argentina represents about 10% of EBITDA and the hyperinflation negatively affected earnings by only about $0.02 per ADR.

Except for Argentina, South American economies continue to show strength, and annual GDP growth is expected to be solid in 2018 in Enel Americas' service territories. GDP in Colombia and Brazil, home to two-thirds of Enel Americas' EBITDA, is expected to increase 2.7% and 1.3%, respectively, in 2018, based on the October 2018 Latin American consensus forecast. Peru’s economy, estimated to contribute almost 20% of Enel Americas' 2018 EBITDA, is growing at an impressive 3.9% rate. Argentina, with currency devaluation of 53% year over year is expected to see GDP decline 2.4% during 2018.