Morningstar | Iberdrola's 2018 Results Boosted by Good Hydro Conditions; Dividend Slightly Above Expectations
Iberdrola's 2018 EBITDA came in above our and consensus' expectations while net income came in line with consensus, though above our forecast. We are likely to increase our fair value estimate by a mid-single-digit rate on this publication. For the moment, we reiterate our fair value estimate of EUR 6.50 per share along with our no-moat, stable trend ratings. We prefer undervalued peer Enel, which boasts higher earnings and dividend growth.EBITDA grew 28% to EUR 9.35 billion, implying a growth acceleration to 44% in the fourth quarter from 23% over the first nine months. The main growth driver was renewables, whose EBITDA surged 54% for the full year, well above our 33% estimate. Key to that was improvement in Spanish hydro conditions above our estimates after a drought in 2017. That should reverse in 2019, assuming normalized hydro conditions. Generation and supply's EBITDA increased 39%, of which 115% was in the fourth quarter due to easy comps; this was above our 26% estimate for the full year. Key to the upside versus our estimate was the United Kingdom, whose EBITDA jumped 180% due to improvement in retail conditions after years of operating issues. That should partially reverse in 2019 due to the tariff cap.
Iberdrola expects mid single-digit growth in EBITDA and net profit in 2019 on investments in renewables and regulated networks and further cost savings to be detailed at the capital markets day Feb. 26. That implies EBITDA of around EUR 9.8 billion, above our EUR 9.6 billion outlook and consensus' EUR 9.7 billion. We will tweak our 2019 EBITDA estimate for the structural part of the upside to our 2018 estimates and the upcoming increase in cost savings. That will increase our subsequent years' earnings forecasts and fair value estimate.
The 2018 dividend will amount to EUR 0.351, 7.7% higher than in 2017 and slightly above the consensus' EUR 0.34. That implies a dividend yield of 4.8%, below the 5.1% sector average and Enel's 5.4%.
Recurring net profit rose 19% to EUR 3 billion, in line with consensus' estimates. EBITDA growth was partially offset by an increase in financial expenses on Neoenergia consolidation and an increase in net debt from EUR 32.9 billion to EUR 34 billion.
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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