Iberdrola’s Mix Is “Coherent” With Global Energy Policies

IberdrolaMoncloa considers decree law to implement tax on energy cos

Investors of Iberdrola have seen how the company’s shares have exceeded 10 year maximums with a satisfactory evolution of +24% since the October lows. Analysts at Alphavalue highlight Iberdrola’s solid results in recent quarters, the good balance between its diverse businesses and the lower intensity in the consumption of CO2 rights. “Various reasons to remain positive and continue seeing the share as a good bet over the long term to navigate the energy transition,”summarize.

According to the financial analysis firm, the first reason to appreciate Iberdrola’s shares is found in its combination of regeneration, which can be reduced to three pillars: 42% of global renewable energies, 16% of Spanish nuclear energy and 35% gas, especially in Mexico where Iberdrola will generate around 20% of the country´s needs by 2022.

This combination is completely coherent with global energy policies which are changing towards renewable sources. The total carbon intensity of the group is 2.7X less than the COP21 promises, which are about 190tn CO2/MW.

A couple of weeks ago, the Spanish Government published its long awaited National Energy Plan, with ambitious targets to generate 74% of electricity from renewable sources by 2030 and 100% by 2050. As a consequence, the Government plans to install at least 3GW of solar and wind energy, thus doubling wind energy capacity and quadrupling that of solar, thus offering a clear long term strategy which favours Iberdrola. The other obvious catalyst is the subtle combination of growth and the group’s defensive attitude.  In opinion of  the experts from Alphavalue:

The defensive, given that the majority of the group’s activities are regulated. Renewables can be regarded as semi-regulated, given that sales prices are often fixed during long periods, generally of 12-20 years.

The group has increased its investments and expects +10% EBITDA CAGR during the period 2018-22. A target made possible by the group’s capacity to generate cash and thanks to the capex programme of 34 bn€. As was to be expected, the major part of the investment will be allotted to renewable energies, networks and contracted generation. The 2022 targets will, of course, be subject to external factors, including interest rates and the fluctuations in energy prices, as well currency movements.

This high visibility makes Alphavalue thinks the share price needs to go a little further.

It is important to emphasize that the 2022 targets are all organic. It is true that the motor for growth through M&A began to peter out with the acquisition of Neoenergia in 2017 (3.6X net debt/ENITDA at 31/12/2018). However we do not rule out smaller offers. We offer a potential at six months for fundamentals of +12.4%.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.