EUR 850.00 For Business Accounts Only

Morningstar | Efficiencies and Tariffs Increases Offset Poor LNG Performance in Naturgy's First-Quarter Results

We reiterate our fair value estimate of EUR 24.6 per Naturgy share along with our narrow-moat, stable trend ratings after the group released first-quarter results in line with consensus expectations and left its full-year targets unchanged. Shares look fairly valued.

Ordinary EBITDA grew 6% to EUR 1.17 billion. Reported EBITDA came in at EUR 1.12 billion, up 6% and in line with consensus expectations. The difference between ordinary and reported figures comes from restructuring costs of EUR 50 million. Reported net income increased by 7% to EUR 341 million.

Profitability drivers reversed compared with 2018. Main positive contribution came from networks, while gas and power's profitability was flattish. North Latam networks' EBITDA jumped by 68% on regulatory tariff increases and higher volumes. In Spain, networks' EBITDA was flattish as the positive impact of efficiencies was offset by restructuring costs.

Gas & power's flattish EBITDA hides mixed performances. EBITDA significantly increased for energy services sales, European and International power generation divisions on efficiencies, higher power prices, and dollar strengthening. On the negative side, International LNG' EBITDA tumbled by 30% due to the drop in international gas prices and lower volumes after a very favorable 2018.

Naturgy did not change its full-year guidance of reported EBITDA and net income guidance at EUR 4.6 billion and EUR 1.4 billion, respectively, in line with our estimates. The group also reiterated its EUR 100 million cost savings target. Our reported EBITDA estimate of EUR 4.7 billion implies a growth rate of 14%, well above the 6% achieved in the first quarter. Still, we see it within reach on International LNG stabilization and easier comps for the rest of the year due to significant negative one-offs at the end of 2018.