Morningstar | IBE Releases 9M Results In Line With Expectations and Confirms FY Guidance; Shares Fairly Valued
We reiterate our EUR 6.50 fair value estimate and no-moat, stable trend ratings after Iberdrola released nine-month results in line with consensus expectations and confirmed its 2018 guidance. The shares are fairly valued. EBITDA grew 24% to EUR 6.7 billion, while underlying net profit decreased by 13% to EUR 2.1 billion due to significant 2017 positive one-offs.EBITDA growth accelerated to 34% in the third quarter from 17% in the first half. EBITDA for the generation and supply division grew 23% in the third quarter after being flattish in the first half. Key to that is easier comps, as a significant positive one-off was booked in Spanish gas activity in second-quarter 2017. Profitability growth also accelerated in Mexico, owing to an increase in regulated tariff and new cogeneration capacity. EBITDA for the renewables division also accelerated in the third quarter to 74% from 26% in the first half due to higher output driven by new capacity and better wind and hydro conditions. Notably, the backdrop reversed in Mexico, where the first half was dampened by lower tariffs.
Networks is the only division whose EBITDA growth slowed down in the third quarter at 13% (from 21% in the first half), owing to Spain and the U.S., which was affected by tariff adjustments related to the tax reform. Tariff increases in the U.S. and Brazil and Neoenergia consolidation were still the main growth drivers. On the negative side, exchange-rate movement shaved 5.7% off EBITDA versus 7% in the first half, chiefly due to a slide in the Brazilian real.
Iberdrola reaffirmed its 2018 guidance of EBITDA over EUR 9 billion and now guides for net profit reaching EUR 3 billion versus "close to" EUR 3 billion so far. Thus, we will tweak our respective assumptions of EUR 8.9 billion and EUR 2.8 billion. However, the impact on our long-term forecasts and valuation will be limited. We currently forecast 2017-22 net income CAGR of 4%, driven by hefty investments in renewables and networks.
Iberdrola is a holding company. Through its subsidiaries, Co. operates in four segments: network business, which includes all the energy transmission and distribution activities, and other regulated activity originated in Spain, the U.K., the U.S. and Brazil; deregulated business, which includes electricity generation and sales businesses as well as gas trading and storage businesses carried on by Co. in Spain, Portugal, the U.K. and North America; renewable business, with activities related to renewable energies in Spain, the U.K., the U.S. and the rest of the world; and other businesses, including the engineering and construction businesses and the non-power businesses.
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