With the aim of offering a return which is sustainable in the long-term, Endesa has based its 2018-2020 strategy on efficiency and digitalisation. This strategy will be based on maximising the value for clients, Smart grids and the decarbonisation of the generation mix.
In the electricity commercialisation market, where the company has a 35% share, it hopes to increase sales to final clients by nearly 4% in 2020, and see a 19% rise in clients in the deregulated market. In the gas commercialisation market, where Endesa has a 17% share, sales are forecast to rise by 5.6%. Clients could increase by 6% in 2020. The company estimates margins in both markets will see sustainable growth.
As far as digitalisation goes, Endesa plans an investment of 1.2 billion euros until 202o, with a further 800 million euros to update its network. The digitalisation includes smart meters, the automization of the network, reduced losses, the modernization of the networks, and the transformation of the commercial and technical systems. These investments are 11% higher than those estimated in the previous strategic plan.
This new plan improves the group’s long-term visibility and allows dividends to be sustained thanks to its robust cash generation. A minimum dividend of 1,32 eur/share in 2017 and 1,33 eur/share in 2018 has been confirmed. This implies a dividend yield 2018 estimated of 7% (higher than the sector average of 5%).
Despite the downwards revision to EBITDA, greater visibility, as well as the greater investment estimated, earmarked for growth, and the sustainability of the dividend meant the share price reacted very positively. In Renta 4’s opinion:
At these levels, the share price is very demanding. For that reason we are reiterating our Hold stance on the stock, ahead of incorporating the new forecasts into our valuation. That said, we believe it would be an attractive investment via the dividends.
For Bankinter, the guidelines given by Endesa for 2020 seem “ambitious” (net attributable profit +13% vs 2019), taking into account the “foreseeable reduction” in the regulated returns in the distribution business.
