UTILITIES SECTOR REPORT: FISHING IN TROUBLED WATERS (ANÃLISIS BANCO SABADELL)
ELE, IBE and ENAG are our top picks.Today we are releasing our annual report on the utilities sector. Following a widespread market correction, the sector’s multiples continue to be demanding with respect to the market in general (13-15x P/E). However, in absolute terms, the stocks have fallen by as much as -25%, meaning that, even being selective, we continue to find long-term bets on the sector. In ELE, despite its good relative performance (+11% vs. IBEX since highs/-23% in absolute terms), we changed our recommendation to BUY, setting a T.P. of € 26.07/sh. (+27% upside/+6% increase). In IBE, we change our T.P. very slightly (T.P. € 10.70/sh.; +10% upside), but we believe that the stock’s underperformance in the last few weeks (-5%/-10% vs. peers) is unjustified and thus, we reiterate our bet. Lastly, in ENAG, our T.P. remains the same. Although the upside potential is slightly reduced (T.P. € 23.38/sh./+12% upside), its dividend yield remains highly attractive (>8% yield), we prefer it to REE, where there is little visibility on Hispasat and a lower dividend (5.4% yield). Although the catalysts are the same for all of the companies within the sector (immunity to Covid-19, liquidity levels and dividend), we are selective and exclude NTGY from our top picks (T.P. € 17.82/sh.; +8% upside/-26% in T.P.), from which we would demand a higher upside potential in view of the results risk, as well as REE (T.P. € 17.79/sh. +11% upside/-4% in T.P.), which we find less appealing than ENAG, and ANA (T.P. € 90.30/sh.; -3% potential/-7% in T.P.), which would be penalised by merchant renewable assets in Spain. Risks: (i) Tax increases: +/-100 p. in the tax rate has an average impact of +/-1.5% in EPS and +/-1.1% in T.P.; and (ii) Increased risk premium: +/- 10bps in the 10Y bond yield means +/-1.8% on the sectors’ stock prices on average.
Acciona is the parent company of a construction group. Co. is engaged in general construction activities in the areas of civil engineering and buildings, including railways, marine and hydraulic works, motorways and airports, town planning, conduits, pavements, parking lots, and industrial and urban buildings. In addition, Co. is engaged in the provision of real estate services, the operation of parking lots, telecommunications, services, ecology and alternative means of energy. Co.'s operations are organized in six business divisions: Infrastructures, Real Estate, Energy, Water, Environmental & Urban Services and Logistic & Transport Services.
Enagas is a gas transportation company based in Spain. Co. is engaged in the technical distribution and storage of gas through pipelines as well as the provision of regasification services. Co. and subsidiaries are engaged in the ownership, administration, storage, pipeline transportation, distribution flow, and sale of natural gas. As a transport company, Co. also provides gas and manages the gas infrastructures.
Endesa is engaged in the production, transmission, distribution, and supply of electricity, through hydroelectric, fossil fuel, and nuclear generation. Co. is also engaged in the mining of coal for use in its fossil-fuel electric plants; mining research; land restoration, and environmental monitoring and control.
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.
Red Electrica is engaged in the transmission of electrical energy, the operation of the system and the management of the transmission network in the Spanish electricity system. In addition, through its subsidiaries, Co. is engaged in the acquisition, holding and management of foreign securities, co-ordination of international exchanges, provision of telecommunications services for third parties, provision of consultancy, engineering and construction services outside the Spanish electricity system, securing of funds, carrying out of financial transactions and provision of financial services.
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