Naturgy Sets 2023 Guidance Above Expectations

We plan to tweak our EUR 24 fair value estimate upward after no-moat Naturgy NTGY released 2022 earnings and set 2023 guidance above our and FactSet consensus expectations. The firm has no visibility regarding the timing of the Gemini project, aiming to split its liberalized and regulated activities into two listed entities through a spinoff. This project, unveiled in February 2022, was due to be completed by the end of 2022, but was postponed at first-half 2022 results due to the fallout from the energy crisis. For investors seeking companies favorably exposed to high commodity prices, we recommend undervalued RWE and Engie.

EBITDA for 2022 jumped by 40% to EUR 4.95 billion, above our and consensus’ EUR 4.8 billion (aligned with the guidance). In the fourth quarter, EBITDA surged by 50%. Net profit for 2022 went up by 36% to EUR 1.65 billion.

Liberalized activities posted record profitability in 2022 on the back of the energy crisis. Markets and procurement’s EBITDA surged nearly thirteenfold to EUR 1.1 billion thanks to higher-selling gas prices. Spanish thermal power generation’s EBITDA surged almost fivefold to EUR 0.4 billion, its highest level since 2018 thanks to 43% output growth and higher clean-spark spreads, notably because of the severe drought. Supply’s EBITDA came in at EUR 0.54 billion, its highest historical level after making a loss in 2021.

Networks’ EBITDA grew 9% to EUR 2.5 billion thanks to positive tariff updates in Latin America and negative one-offs in Spain in 2021.

Naturgy guides for 2023 EBITDA at least equal to EUR 4.95 billion in 2022. This is largely above our EUR 4.35 billion and consensus’ EUR 4.57 billion. In line with 2022, our downside is driven by liberalized businesses. As we expect commodity prices to normalize in the medium term, raising our 2023 estimates will have a limited impact on long-term forecasts.