Santander Research| Moody’s has upgraded Enagás’ rating outlook (Baa2 e, BBB e, BBB e) from negative to stable. The decision is based on Enagás’ strategic update, which outlines measures to strengthen its balance sheet by 2027. Enagás reduced its dividend pay-out from €1.74/share to €1.00/share for 2024-26, and cut planned investments for the period by €300m. Moody’s expects the additional cash flow generated by the company to be used to stabilise adjusted net debt at around €3.4bn by 2024-26. The measures announced by the company are expected to offset the phasing out of the Continuity of Supply Charge (RCS) by the regulator, as well as the reduction of the company’s regulated asset base. In addition, Enagás intends to prepare for a major hydrogen investment programme. Moody’s expects Enagás to achieve a (Moody’s-adjusted) funds from operations (FFO)/net debt ratio of around 17% on average over 2024-26.
Assessment: We concur with Moody’s decision. We believe the dividend cut reflects the company’s commitment to maintaining its credit rating as it faces several years of significant hydrogen-related investments. We have long been concerned about the high dividend payout in the face of declining revenues, which has now been addressed. We maintain our Underweight recommendation, pending clarity on the regulatory framework for the proposed hydrogen backbone, and view the 1.375% 05/28 and 0.375% 11/32 bonds as expensive.
