Endesa, Acciona Energía and Iberdrola to be most affected by new government, with impact on EPS due to tax on windfall profits


Morgan Stanley | Pedro Sanchez won an absolute majority in the congressional investiture vote, which should allow him to continue as Prime Minister for the next four years. However, the Spanish government will be an eight-party coalition, similar to the previous coalition government, which will include PSOE and Sumar, along with regionalist parties ERC, Junts, PNV, Bildu, BNG and CC.

Analyst Rob Pulleyn expects the confirmation of the new Spanish government to be neutral for Spanish utilities. The possibility of such a coalition government had already been announced in the press, so the market should not be caught by surprise and the impacts on the sector are well known. Rob believes that this outcome may:

Maintain measures on energy prices, such as the extension of the tax on energy companies or the possibility of an extension to the Iberian derogation (which allows the price of gas to be capped), as announced in this news item in El País: “Spain to ask Brussels to extend the Iberian derogation beyond 31 December“.

Allow continued support for the development of renewable energies.
Maintain the planned closure of nuclear plants from 2027-2035 (as already expected).

As already mentioned, support for renewables will particularly benefit Acciona Energía, followed by Endesa and Iberdrola. In addition, the potential benefit for Endesa or Iberdrola from the extension of nuclear energy proposed by PP and VOX was not priced in, as the market preferred to wait for the outcome of the investiture.

Rob believes that the biggest impact will be the extension of the tax on windfall profits of energy companies, as indicated in his agreement with Sumar on 24 October. In this regard, he believes that Endesa, Acciona Energía and Iberdrola will be the most affected, with an impact on EPS of -7%, -5% and -3% on average, respectively. Other companies, such as EDP and EDPR, will probably not be affected as much, given their lower exposure to Spain. While this impact is likely already priced in, Rob notes that there remains some uncertainty in the sector until the government decides whether to extend the tax to 2024, which should be clearer before the end of the year.

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