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

1Q'20 vs. 1Q'19 Results
EBITDA: € 944.0 M (-15.6% vs. -9.8% BS(e) and -7.6% consensus);
EBIT: € 505.0 M (-27.5% vs. -20.1% BS(e));
Net Profit: € 199.0 M (-41.6% vs. -26.7% BS(e) and -20.2% consensus);
The 1Q’20 results came in seemingly worse than expected due to higher procurement costs. Adjusted for procurement costs totalling € 158 M (we expected € 100 M), EBITDA came in at € 1.1 Bn (-5.6%) and Net Profit at € 305 M (-19%). If we adjusted our estimates for these costs, EBITDA would be in line. We do not like the fact that NTGY has not provided estimates due to the lack of visibility. Even if this guidance had been poorly received, we would have welcomed the quantification of variables like GNL, LatAm and some visibility into commercialisation, where we see an increased risk in 2Q’20 and 3Q’20.
By divisions: (i) Infrastructure EMEA (40% EBITDA) fell -12% in EBITDA vs. -11% expected due to cuts to electricity distribution in Spain and higher client acquisition costs. (ii) Gas & Electricity (36%) fell much more than expected (-23% vs. 13%) as a result of low margins in commercialisation and LNG. (iii) Infrastructure LatAm South (17%) fell -9%, as expected, due to FX effects in Chile and Brazil. (iv) Positive surprise in Infrastructures LatAm North (9%), which grew +10% vs. +4% expected due to the greater stability in Mexico and Panama.
On the positive side, NFD came in as expected (€ 15 Bn vs. e 15.23 as of Dec 2019) despite a dividend payment on the quarter. This positive data is due mainly to keeping CAPEX under control (€ 201 M/-33%).
We would avoid the stock given the negative earnings momentum, especially in the 2Q’20 and 3Q’20. In our scenario of V-shaped recovery, we will cut 2020e adjusted Net Profit by between 25%/-35% with an average impact on valuation of -30% to € 16.80/sh., yielding very limited upside of +8% that does not offset the risk, in our view. From Feb’20 highs, NTGY has been the worst performer in its sector (--1% vs. IBEX vs. >+10% IBE and ENAG) and even if results do not differ significantly from expectations, we do not see reasons for a change of this performance. Conference call at 12:00 (CET). SELL. T.P. Under Revision