Company Reports

While wholesale power prices stabilized, government bonds’ yields fell on weak economic indicators and lower inflation in the US and Europe. Second-quarter results were boosted by very favorable hydro conditions that led to some guidance upgrades. This goldilocks scenario bolstered a rally in European utilities, enabling them to massively outperform the market and recover much of their earlier underperformance.

We confirm our EUR 25 fair value estimate after no-moat Acciona Energia released first-half results hit by lower achieved power prices and set its 2024 guidance below our expectations, but more in line with FactSet consensus. The firm also sold hydropower assets at an attractive price, continuing its efforts to strengthen its balance sheet and crystallizing value by exploiting the discrepancy between its depressed value (in line with most renewable developers) and the high value of renewable asset sales. Shares are undervalued.

Utilities have reversed part of their first quarter’s fall, thanks to a strong rebound in power prices. Moreover, the deep undervaluation of renewables developers has driven takeovers by big investment firms at very high multiples. Neoen’s main shareholders accepted an offer at 18 times the EBITDA. The sector is still significantly lagging the market in 2024 because of high interest rates. Should they fall, it would boost the sector.

No-moat Neoen's main shareholders, together holding 53.3% of the shares, have agreed to sell them at EUR 39.85 per share to Brookfield Asset Management. Neoen's board has unanimously accepted the offer. Upon completion of the block acquisition, Brookfield will file an all-cash tender offer. The transaction is subject to regulatory approvals, which are expected to be obtained in the fourth quarter; clearing the tender offer that would occur in first-quarter 2025. We see the offer as attractive and raise our fair value estimate to EUR 39.85 from EUR 31.50, in line with it.

We confirm our EUR 25 fair value estimate after no-moat Acciona Energia released its first-quarter trading statement, calling for 2024 EBITDA lower than the guidance set on March 1 due to the firm's decision to curtail its output in the first quarter because of depressed spot power prices driven by a combination of favorable wind and hydro conditions and subdued demand due to a mild winter. This reflects the challenges of the Spanish power market where high renewables penetration entails frequent episodes of negative spot prices. Still, with shares down by 6% at the time of writing, we view the market's reaction as excessive and shares as undervalued.

A renewables developer, Acciona Energia was spun off from Spain industrial conglomerate Acciona in July 2021. The floating share is 17.3%. The rationale of the IPO was to revive capacity growth that had been subdued since a 2013 regulatory change in Spain drove a sharp cut in renewables' returns.

On April 1, The Australian Financial Review reported that no-moat Neoen hired Bank of America to sell 30% of its Australian business with a price tag of $1.6 billion. This spurred an 8.5% rally in the shares between April 2 and April 5. The $1.6 billion that was reported implies a whopping valuation of EUR 2.4 million per megawatt of installed capacity versus EUR 1.1 million/MW implied in our fair value estimate. All in all, the reported price implies a gross valuation premium (before any taxes on capital gains) of EUR 2.8 per share or 9% of our fair value estimate. We confirm our fair value estimate of EUR 31.50 for Neoen. Due to its young asset base and suitability for a takeover, stemming from its shareholder structure, it's the least undervalued pure renewables developer we cover.

European utilities have reversed their outperformance in the fourth quarter of 2023 because of a fall in wholesale power prices in the wake of gas prices after a very mild winter, and a pickup in interest rates due to inflation receding more slowly than expected. The former led to some of the companies, most exposed to power prices, cutting their guidance for 2024.

We maintain our EUR 32 fair value estimate after no-moat Acciona Energia released 2023 results in line with expectations and set 2024 guidance below our estimates, but above FactSet consensus. It also cut its medium-term capacity addition targets and said it will resort to regular asset rotations. This was welcomed by the market with a high-single-digit jump in the share price at the time of writing. Shares are materially undervalued.

A renewables developer, Acciona Energia was spun off from Spain industrial conglomerate Acciona in July 2021. The floating share is 17.3%. The rationale of the IPO was to revive capacity growth that had been subdued since a 2013 regulatory change in Spain drove a sharp cut in renewables' returns.

European utilities are up by 14% year to date, slightly underperforming the broader European markets. Since the end of September, the sector strongly outperformed thanks to the rally in government bonds and solid third-quarter results that drove multiple guidance upgrades although growth slowed down from the second quarter due to higher comps. All in all, companies that are the most exposed to commodity prices are set to exceed their 2022 record profits in 2023. Meanwhile, firms with big retail businesses that were hit by a margin squeeze because of the energy crisis in 2022 will post a significant rebound in earnings.

We confirm our EUR 32 fair value estimate after no-moat Acciona Energia confirmed 2023 EBITDA guidance while raising guidance for investments. We view shares as undervalued.

No-moat Acciona Energia released first-half results that were hit by lower power prices and cut its 2023 EBITDA guidance a bit more than we expected. We maintain our EUR 32 fair value estimate. We don't see enough margin of safety to buy the shares at their current level.

A renewables developer, Acciona Energia was spun off from Spain industrial conglomerate Acciona in July 2021. The floating share is 17.3%. The rationale of the IPO was to revive capacity growth that had been subdued since a 2013 regulatory change in Spain drove a sharp cut in renewables' returns.

We don't plan to materially change our EUR 35 fair value estimate after no-moat Acciona Energia released its first-quarter trading statement. Although the group confirmed its 2023 guidance, we see it at risk given the fall in wholesale power prices in Europe. Shares are in 3-star territory meaning there is not enough margin of safety to buy them.

We are currently maintaining our fair value estimate of EUR 35 for no-moat Acciona Energia as we roll our model to incorporate full fiscal 2022 results. EBIT jumped 76% in 2022, as increased volume demand and achieved power prices in Spain compounded with a Spanish regulatory banding mechanism regarding the company's standard regulatory facilities (excluding biomass generation) being reversed. The reversal had a positive effect of EUR 10.2/MWh to the average achieved power price in Spain, pushing it to EUR 167.6/MWh and raising EBT higher than our expectations. The company will pay a dividend of EUR 0.70 per share on 2022 results, implying a 1.9% dividend yield. We view shares as fairly valued.

We initiate the coverage of Acciona Energia with a fair value estimate of EUR 35, implying a 2023 EV/EBITDA of 8.2, below peers' median of 13 as of late January 2023. However, unlike peers, Acciona Energia's EBITDA will be boosted by high power prices in the short term due to its greater merchant exposure. At the current price, there is not enough margin of safety to buy the shares.

A renewables developer, Acciona Energia was spun off from Spain industrial conglomerate Acciona in July 2021. The floating share is 17.3%. The rationale of the IPO was to revive capacity growth that had been subdued since a 2013 regulatory change in Spain drove a sharp cut in renewables' returns.