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Ordinary EBITDA 1H22 -1.6% (reported +5%), broadly in line The weak, although expected, operational performance at the consolidated level was explained by the poor performance of Italy (-19% YoY) explained by its Supply business (-75%). This was only partly offset by the strong performance of Iberia (+5%) and Latam (+31%) mostly thanks to Brasil (+77%), Colombia (+31%) and Peru (+31%). 1H22 Ordinary NP (EUR2.1bn, -8.3%) and reported (EUR1.7bn, -4.8%) both below expectations Net Profit was impacted by the increase in DandA (+29%) on higher capex, adjustments related to assets held for sale (EUR0.6bn) and write downs of receivables (EUR0.17bn). Financial charges remained under control (-4%) while taxes (-16%) and minorities (-47%) showed a significant decline. FY22 financial targets reiterated. FY22e ND expected at EUR61bn Enel reaffirmed its FY22 targets (EUR19.0-19.6bn Ord EBITDA, EUR5.6-5.8bn Ord NP and EUR0.4 fixed DPS) which are aligned with consensus'' estimates. We note the ordinary figures will not include the expect EUR0.7bn capital gain from today''s announced sale of Chilean transmission assets. The negative came again from the ND outlook which is now seen at EUR61bn by FY22e and assumes no additional regulatory impacts (on top of the current EUR2.6bn; o.w. EUR2.2bn Italy, Eur0.2bn Spain and EUR0.2bn Romania), almost EUR2.9bn WC improvement in 2H22 and EUR4.0bn divestments in the period (of which Russia, Fortaleza and Chilean transmission amount to 50%) TP revised downwards - However positive risk-reward We trim down our TP on higher debt estimate (in line with the EUR61bn target), higher cost of capital and MTM for subsidiaries in our SOTP. However, Enel is trading at 2023 8.2x PE and 7.1x EV/EBITDA. In our view it is simply cheap, despite admitted concerns about its FCF generation which might get exacerbated by further regulatory intervention. Nevertheless, we believe that the re-pricing of contracts will lead to a major margin...
Enel SpA Enel SpA
Ordinary EBITDA +8% (broadly in line with consensus) The high single digit growth at the operational level is largely explained by Latam (+38% YoY) on tariff updates and FX, the partial sale of Ufinet (EUR220m capital gain) and NorthandCentral America (+178% YoY), which last year were negatively impacted by the polar vortex in Texas. The weak numbers in Italy (-3%) and Spain (-10%) come as a consequence of the poor hydro resource in the period and the long supply position, putting pressure on the integrated margins. Ordinary NP +19% (also broadly in line with consensus) The strong bottom line was supported by the sound operational performance, a decline in financial charges (-2%) and the decline in minorities (-31%) resulting from last year''s buyouts. FY22 guidance re-affirmed Enel confirmed FY22 EBITDA and NP guidance (EUR19-19.6, EUR5.6-5.8 respectively). Management also stated that ND/EBITDA is expected at around 3x by FY22 assuming the absorption of temporary WC deterioration in 1Q22 amounting to EUR3.6bn. Remain positive, closely monitoring FCF generation though Trading multiples (2023e EV/EBITDA 7.6x and 10.5x PE) look cheap while Enel is well-positioned to benefit from the attractive growth opportunities that will arise in the sector; thus, we reiterate our positive view on the name. This said, the ND figure has increased sharply (EUR13.2bn increase YoY, +29%) and needs to be closely monitored to make sure it will not jeopardise potential growth opportunities and challenge the valuation.
FY21 results unsurprisingly in line Enel FY21 results were pre-announced in early February thus there was no surprise. We note the Ordinary EBITDA (+6.6%) included ~EUR1.7bn gains from Open Fiber. The FY21 Adj. NP (+8%), was in line with expectations and company guidance. There was a big gap between the Ordinary NP (EUR5.6bn) and Reported NP (EUR3.2bn): EUR2.4bn was due to charges for energy transition and digitalisation (-EUR1.84bn), value adjustment on generation assets (-EUR1.03bn), Covid-related costs (-EUR36m) and the positive impact from Impairment at Slovenska (EUR540m). FY22 guidance confirmed, though there are many moving parts Company guidance for the FY22 (EBITDA EUR19.0-19.6bn, NP EUR5.6-5.8bn) was reiterated. Enel management explained that the FY22 plan is to make up for FY21 positive one-offs (Open Fiber EUR1.7bn and EUR0.6bn Spanish generation) with the reversal of EUR1bn temporary headwind in 2021, Renewables (including EUR150m ERG assets contribution), Networks (EUR0.2bn) on RAB growth, Retail and Enel-X (EUR0.4bn) and EUR0.4bn contribution from the Stewardship model. Time to revisit - risks largely priced in, in our view The shares are down -17% YTD and -30% in the last 12 months. This is partly explained by the guidance reset (Nov-21), concerns about underlying growth and FCF generation, and the impact from the invasion of Ukraine, which has raised social concerns and hence regulatory risk (potential clawback of windfall profits). However, Enel remains well positioned to benefit from the new EU policy, regulatory risk impact is limited and, in our view, priced in. Also, Enel has already proven its capabilities in Renewables (5.2GW added in FY21 and 11.6GW in execution) and Networks. There is a price for everything, and in our view Enel''s share price now represents a good entry point. Upgrade to Outperform (from Neutral) after recent market selloff We leave our EUR6.9 TP unchanged since lower FY21 net debt compensates...
Underlying operational performance remains weak, but in line with consensus Reported EBITDA (EUR11.278bn -11.2%) came EUR1.35bn below the Ordinary EBITDA reported by Enel (EUR12.36bn -11.2%) because of EUR1.3bn costs for the energy transition and digitalization considered by Enel as non-ordinary. The Ordinary EBITDA performance was only positively supported by Italy (+1%) while the other main divisions, Spain (-9%), Europe and North Africa (-8%), Latam (-2%), North and Central America (-12%) saw negative performance. Significant decline in NP as a result of the weak operational performance Reported NP (EUR2.5bn, -14%) came c. EUR0.8bn lower than the Adjusted one (EUR3.289, -8% YoY) as a consequence of costs for energy transition and digitalization (-EUR0.9bn) and Covid costs (-EUR26m), partly offset by positive impact from net impairments (EUR0.16bn). Adjusted numbers came broadly in line with consensus. Long-term guidance may be (too) challenging, although (arguably) largely priced in FY21 guidance was reconfirmed (EUR18.7-19.3bn EBITDA, EUR5.4-5.6bn Net Profit) and is expected to be supported by the closing of Open Fiber deal (EUR1.7bn gains to be booked as recurring). The market debate, however, remains whether Enel will achieve the long-term targets or reset them in the forthcoming CMD. Our updated estimates for FY23 remain below guidance (-6.5% on EBITDA and -16% on NP) TP upgraded on improved performance from subsidiaries - Upgrade to Neutral We have rolled over the debt to 2022 and added one additional year of pipeline and removed the potential gas clawback impact in Spain (main booster of our estimates). We have also updated mark-to-market valuations on listed subsidiaries, the main driver for our TP upgrade to EUR7.0 (from EUR6.6). In spite of still-demanding multiples, the limited downside and the proximity of the CMD (potential positive catalyst on the 24th November) lead us to upgrade our recommendation to Neutral.
Underlying operational performance (ordinary) remains weak, reported even weaker The decline in Ordinary EBITDA (-5% YoY) is largely explained by Iberia (-20% YoY, please see ENDESA: Weak underlying results, but FY21 guidance reiterated) and Latam (-4% vs -16% in 1Q21). Despite the relative improvement of the latter, we note EBITDA amounted to EUR984m, similar to 1Q21 (EUR897m). There was a positive contribution from Italy (+2%), supported by the strong Supply (+8%) and North America (+3%). At the consolidated level, complete recovery is not evident yet. Ordinary EBITDA stood at ~EUR4.2bn both in 1Q and 2Q 2021. We note the company accounted EUR0.6bn restructuring charges; reported EBITDA stood at EUR7.7bn for 1H21. Ordinary NP (+1%), reported -9%. Debt on the rise (EUR50bn) The difference between Ordinary NP (EUR2.3bn) and Reported (EUR1.78bn) is largely explained by the restructuring charges (EUR0.4bn) and impairments (EUR0.2bn). Enel confirmed it will use the EUR1.7bn gain from Open Fiber (considered ordinary) to achieve the FY21 guidance. We highlight the significant increase in the net debt figure from EUR45.9bn in 1Q21 to 1H21 EUR50.4bn, which might raise concerns about Enel''s FCF generation capabilities. A big gap to fill in order to achieve long-term guidance We expect the FY21 guidance to be achieved on the EUR1.7bn gain from the sale of Open Fiber. However, the weak underlying performance points to significant earnings risk in 2022-23. Enel management stated it plans to fill the gap thanks to: 1) renewable additions, 2) additional capex, 3) Next Gen EU funds and 4) a more favourable power price environment. In our view, FY22-23 guidance looks too challenging; thus we stand well below company guidance (-12% on 2022e EPS). Be wary of regional variations. Reiterate Underperform Looking at consensus valuations, we see our multiples for OECD countries'' activities in line, if not above. However, we assume much lower valuations for...
EBITDA 1Q21 -13%, broadly in line with consensus 1Q21e EBITDA was weak, with almost every division negatively contributing to the company''s operational growth. Italy (+4%YoY) thanks once again to the Retail division (+14% on volumes and margins) was the only positive contributor. Performance in Latam (-16% YoY), Europe and North Africa (-3% YoY), Spain (-31% YoY) and North America (-41% YoY) were all negative. The lack of positive one-offs, the unfavourable FX scenario, the delayed revisions on Latam countries, the polar vortex in Texas and the anaemic recovery of activity in some areas have been the key causes of the weak operational performance in the quarter. Net Profit 1Q21 -6%, also in line NP was also weak in 1Q21, although stronger than at the operational level. The reasons why the bottom line was stronger than the EBITDA were as follows: 1) FX scenario positively impacting DandA (-2%); 2) positive impact from interest on CO2 regularisation in Spain and exclusion of the hybrid costs from the financial charges (-32%); and 3) significant decline in minorities due to minorities'' buyouts and poor operational performance (-28%). Outlook reiterated, but supported by capital gains Enel reiterated FY20 guidance (EUR18.7-19.3bn EBITDA and EUR5.4-5.6bn NP). The expected EUR1.7bn capital gain from the sale of Open Fiber is considered to be part of the ordinary NP, and should help Enel to achieve FY21 guidance and to launch new liability management measures. Enel - Good ESG fit, at a price Enel has strong potential to benefit from the EU Green Deal and we factor into our numbers a Capex plan in line with the one announced at the recent CMD. Nevertheless, we fear underlying earnings risk as a result of a less favourable scenario and lower returns impacting investments in renewables. We believe that Enel''s earnings profile is lower quality and more volatile than peers, as it largely relies on the stewardship model and we see current trading...
FY20 result (preannounced) - No surprises Back in early February Enel pre-announced its FY20 revenue figures: EUR65bn, Ordinary EBITDA EUR17.9bn, EBITDA EUR16.8bn (-5.1%) and Financial ND figure EUR45.4bn. The FY20 results release explains the flattish ordinary EBITDA performance (+1%), which came as a result of the strong performance of ordinary EBITDA in Italy (+8%) and Spain (+15%), fully offsetting the weakness in Latam (-22%) and North America (-9%). The adjusted NP was broadly in line with expectations and the company guidance. The big gap between the Ordinary NP (EUR5.2bn) and the reported one (EUR2.6bn) is largely explained by impairments in Mexico, Australia and Argentina (-EUR537m), impairments in Slovakia (EUR833m), impairments in coal plants (EUR598m) and restructuring plans for decarbonisation and digitalisation (EUR537m). Unchanged outlook, but too challenging in our view Enel confirmed its outlook for the FY21 (EBITDA EUR18.7-19.3bn and NP EUR5.4-5.6bn) despite Enel''s FX scenario (announced in Nov-20) remaining much more favourable than the current MTM. We see the confirmed outlook as challenging given the current FX environment and expect the Latam divisions to disappoint management''s expectations. Our numbers for F21 remain well below guidance (-4.4% at the EBITDA level and -9% on NP). SOTP trading at a generous premium to the parts We have no doubt about Enel''s strong potential to benefit from the EU Green Deal and we factor into our numbers a Capex plan in line with the one announced in recent CMD. Nevertheless, we fear earnings risk as a result of a less favourable FX scenario and lower returns impacting investments in renewables, subsequent to increased competition. We believe that Enel''s earnings profile is lower quality and more volatile than peers and this explains why, in our view, it should trade at a discount to the sector. Given it is highly exposed to emerging markets and liberalised activities, we see Enel...
Enel has set ambitious renewable energy targets at the 2030 horizon coupled with an accelerated coal exit. In addition, investment in new technologies (batteries and hydrogen) should protect its status as a cutting-edge company. The group will also massively invest to upgrade its networks in Europe, to limit operating costs and cope better with the increasing weight of renewables. We confirm our recommendation. Enel is currently among our top picks.
Enel SpA
EBITDA was down by 1%, but increased over 9M, on the back of lower financial expenses and higher results from equity investments. The renewable business unit continues its promising growth, with an EBITDA up by 3%, or 16% when excluding the FX impact. After a massive fall in Q2 20, electricity demand is almost back to its standard in Q3 20. We expect this positive trend to continue in Q4 20. Guidance is confirmed.
Ordinary EBITDA 9M20 -1%, reported -4% EBITDA performance was weak but aligned with our estimates and consensus. The weak EBITDA performance despite the huge investments is largely explained by the impacts from the pandemic and FX. In the 9M20, the positives were the strong performance of the European divisions, both in Italy (+7%) and Spain (+16%), on the back of the strong liberalised margins supported by the long supply strategy and the low wholesale prices and Europe and North Africa (+7%). On the negative side, we note the poor performance in Latam (-27%) due to the lower demand impacting the regulated businesses and the significant FX de-rating. Ordinary NP 9M20 +9% (Reported NP c. EUR0.7bn below the ordinary) Below EBITDA, we note the positive impacts from the lower financial charges (-9%) and minorities (-7%) as well as the decline in the DandA figure (-4%) resulting from the shutdown of thermal plants and the weaker FX. Outlook for FY20 confirmed Enel management confirmed the targets of 2020 Ordinary EBITDA EUR18.0bn and Ordinary NP at EUR5.0-5.2bn. We continue to see the FY20 guidance as overly challenging, since the company would need to post almost EUR5.0bn Ordinary EBITDA in 4Q20 and around EUR1.5bn Ordinary NP, while the persisting impact from the pandemic continues to generate pressure and we cannot rule out the gap between ordinary and reported figures expanding further. Reiterate Underperform Multiples are, in our view, unattractive in light of the business and geographical mix, while we continue to see earnings risk for 2020-22. That said, the reasons for the pressure on the numbers are well known and we expect the market to focus on the CMD on the 24th November rather than on 9M20 results, where we would highlight the weakness of the reported figures for the second consecutive year.
