UBS | Based on our latest conversations with investors, the following three questions emerged on Iberdrola: Could we see EPS growth upgrades following the strategic update on Feb-2017? Could renewables growth plans in the US be at risk? And, Is the company likely to pursue inorganic growth as suggested by recent press articles? Our takes on these issues are: 1) IBE already announced that it plans to increase growth capex targets to 2020E, although still unclear how it will flow down to earnings. Yet, the impact on shorter term EPS should be limited; 2) risks on current US wind growth plans are limited; and 3) further acquisitions could materialise, but in our view these are not a key focus for the company at the moment.
Feedback from our recent meeting with Mr. Jose Sainz, IBE’s CFO
We met recently with the CFO of Iberdrola where Mr. Jose Sainz confirmed its confidence on IBE’s current 2020 growth plan, largely supported by growth in the US market regardless of the election result. Mr. Sainz reiterated IBE’s overall target to up EPS by 5-6% CAGR through to 2020, with the bulk crystallising from 2018. In the short term, 2017 EBITDA should growth at low single-digit, while net income should grow at mid-single digit, supported by falling net financial expenses. DPS should growth in line with the bottom line, while share buy-backs should continue to fully offset dilution from scrip dividend.
Mid-term growth outlook in US wind remains positive and with upside risks
According to the current plan presented early this year, out of the 1.4GW of new wind capacity planned to be installed in the US through to 2020, 50% is already under construction, while the remaining 50% should be secured by year-end. However, given that in Dec-2015 the US Congress has extended the expiration date of incentives to new wind projects, the company has been working to secure potential additional capacity. Could these incentives be at risk now? Unlikely, in the CFO’s view. Combined with potential repowering of some existing assets, we could see new capacity targets to double in this market. Full details to be provided in Feb-2017.
Valuation: Neutral, €6.2 PT
We have a Neutral rating on Iberdrola and €6.2 PT set based on our SOTP model.