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ENDESA: 1Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

1Q'20 vs. 1Q'19 Results
EBITDA: € 1.476 Bn (+59.1% vs. +10.6% expected and +15.3% expected by the market consensus);
EBIT: € 1.118 Bn (+114.2% vs. +29.5% expected and n/a expected by the market consensus);
Net Profit: € 844.0 M (+132.5% vs. +32.2% expected and +39.4% expected by the market consensus).

The company released good 1Q'20 Results at yesterday’s close, marked by one-offs with a net positive impact of € 376 M BS(e) in EBITDA and (€ 312 M BS(e) in Net Profit) if excluded, EBITDA would be +7% above our expectations and +3% above the consensus and Net Profit +11%/ +5%, respectively. The one-offs stem from three positive impacts: (i) € 515 M in EBITDA (386 in Net Profit) due to lower social benefits from the new workers agreement; (ii) ~ € 40 M BS(e) of lower financial expenses (~30 in Net Profit) due to the update of financial provisions and (iii) € 20 M from regularisations of previous years in extrapeninsular activities (15% in Net Profit), and from one negative impact: € 159 M in EBITDA (€ 119 in Net profit) due to personnel restructuring provisions.
Excluding the impact from one-offs, the positive surprise came once more from generation and marketing (40% EBITDA) that grew +51% (vs. our +28% estimate), explained by the advantage of the low pool prices in the 1Q’20 in a short generation position. This high unit margin (€ 34.3/MW/+20% vs. 1Q’19) should fall to 30 (-12%) with lower industrial volumes in the 2Q’20, and thus, this is an operating advantage that will not be recurrent. In the rest of activities we do not see surprises: Extrapeninsular (7% EBITDA) would have remained flat excluding regularisations and Distribution (54% EBITDA) came in slightly below: it fell -2% vs. our -0.2% estimate.
NFD increased unexpectedly by +16% (to € 7.37 Bn/1.7x NFD/EBITDA), above our estimate of +3%, due to increased regulatory working capital levels (€ +164 M to € 10.58 Bn/14% of NFD). The cost of debt was low, as expected: 1.7% vs. 1.8% as of 1Q’19. Although we expect a slightly positive market reaction to this set of these results, we reiterate our SELL recommendation. In our scenario of V-shaped recovery (two quarters of deep recession followed by moderate recovery in 3Q, strong recovery in 4Q and very strong the next year, with a momentum that could last until the second year), we cut our estimate for recurring EBITDA by -4% on average (50% of the cut would come from the implementation of new taxes in Catalonia, which we expect to be challenged), which would have a similar impact on the valuation, bringing our T.P. to levels of € 23.20/sh. (+18% upside). In our negative scenario of U-shaped recovery (two quarters of deep recession followed by modest growth in 3Q and 4Q and strong recovery the next two years; recovery in 18-24 months), the cut would be more significant (-6% to levels of € 27.70/sh.), but would still yield some upside (+15%). SELL. Target Price: € 24.15/sh (upside 23.53%)