Morningstar | Iberdrola Raises 2019 Guidance After Good Start to Year; Shares Rich
We reiterate our fair value estimate of EUR 7 per share along with our no-moat, stable trend ratings after Iberdrola released first-quarter results above expectations and raised its full-year guidance. The shares appear overvalued. EBITDA increased 12% to EUR 2.6 billion, 4% above the consensus and above our 6% full-year growth estimate. Net profit increased 15% to EUR 0.96 billion, 10% above the consensus. On top of EBITDA growth, net profit was bolstered by limited depreciation growth on regulatory extension of the Spanish nuclear plants' useful life.The fastest-growing division was generation and supply, whose EBITDA grew 19% versus our 14% full-year estimate due to strong performance in Spain and Mexico. In Spain, as expected, EBITDA was boosted by higher nuclear power production and the temporary suspension of the generation tax. That implies a positive read-across for Endesa and Naturgy. Networks' EBITDA increased 10%, driven by Brazil, where EBITDA jumped 41% on May 2018 positive tariff revisions, cost savings, and solid demand increase. Renewables' EBITDA went up 13% versus our 2% full-year estimate. Solid growth in the U.K. due to higher production and prices more than offset normalization of hydro production in Spain and lower production and prices in the U.S. Altogether, we expect to increase our 2019 EBITDA estimate as we believe we underestimated the positive price effect in the U.K. renewable business, which will not affect our long-term estimates or valuation. Otherwise, we expect EBITDA growth to slow for the rest of the year on tougher comps and reinstatement of the generation tax in Spain.
Iberdrola raised its 2019 guidance for mid- to high-single-digit growth in net profit and dividend. Our 2019 net profit estimate of EUR 3.25 billion, in line with the consensus, implies 8% growth. We expect to slightly increase it in line with EBITDA. We will also raise our 2019 dividend of EUR 0.36, implying 3% growth.
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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