EUR 200.00 For Business Accounts Only

RED ELÉCTRICA: 2021-25 STRATEGIC PLAN (ANÁLISIS BANCO SABADELL)

We believe that the 2021-25 Strategic Plan has disappointed the market due to a slow pace of investment (with a limited impact of around -3% on valuation) and a lower floor dividend from 2023 on. These factors convey a negative message in qualitative terms to the market, which should continue to penalise the stock. While the current valuation and dividend levels in REE are attractive (€ 1.00/sh. DPS’20/~7%), we believe that those in Enagás are better (10% yield and >30% upside), and thus the latter remains our top pick.

Highlights:
 The company has not provided specific growth targets for EBITDA or Net Profit, although, according to the graphs in the plan, both headlines decrease in Infrastructures Spain (the company suspends the remuneration of assets predating 1998, which we already include in our estimates, with a CAGR’21-25e of around -3% in EBITDA), but increase in International (CAGR’21-25e of +6% in EBITDA vs. +2% BS(e) and Telecommunications (CAGR’21-25e of +5% in EBITDA vs. 1% BS(e)). The regulated business still has a significant weight, representing ~80% of the group’s turnover in 2025 (vs. 82% currently), which will offset to some extent the impact from reduced revenues in TSO.
 Investments over the 2021-25 period: € 4.4 Bn (€ 3.34 Bn in TSO, € 735 M in Telecommunications and € 224 M in International investment). The Networks data is disappointing, as both the consensus and we had forecast € 900 M annually vs. the € 660 M announced today. This lower level of annual investment would have an impact of around -3% on our T.P.
 Dividend policy: The plan sets a floor dividend of € 1.00/sh. for the 2021-22 period (7% yield), while that for the 2023-25 period is reduced to € 0.80/sh. (5.6% yield; -20% vs. our estimate and that of the consensus).
 Operating and financial efficiency targets for the period: The company will create value via good resource management, the identification of synergies, and processes optimisation. It will also consider financial alternatives under good market conditions to optimise its capital structure (such as hybrid bond issuances) and maintain a robust credit rating. Additionally, the group’s strategic businesses will be marked to market with the incorporation of minority partners to bolster their development (both in Hispasat and in the fibre optic and 5G businesses, we foresee a limited impact, as this accounts for less than 14% of the total EBITDA). As for metrics, we stress:
- 70% EBITDA margin 70 vs. 78% BS(e).
- >15% FFO/DFN Ratio vs. 17% BS(e).
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