Bank analysts expect new targets for 2026 that should reflect higher interest rates and lower electricity prices compared to what is foreseen in the current strategic plan.
EDP Renováveis’ profits rose 4% to 68 million euros in the first quarter compared to the same period last year.
In its analysis of the results, Goldman Sachs (GS) said today that they were above expectations: 3% more compared to consensus in EBITDA and 10% higher in profits. The North American bank believes that the numbers put EDPR on the path to reaching the consensus for this year: two billion in EBITDA, 470 million in profits, benefiting from gains of 200 million from the sale of assets.
But, “once again”, the net debt appears “higher than expected”, at 6.7 billion euros. If it were analyzed in adjusted terms, the net economic debt would exceed nine billion euros.
The company’s net debt rose by 933 million between the end of 2023 and March to 6.7 billion euros, with the net debt to EBITDA ratio rising from 3.2 times to 3.7 times in the space of three months.
Analysts believe that the company will provide new targets for 2026 that should reflect higher interest rates and lower electricity prices compared to what is foreseen in the current strategic plan. “We expect lower net and gross additions, and a mark-to-market [atualização das previsões] in electricity prices”, as around 30% of revenues are exposed to electricity markets.
EBITDA for 2026 is expected to reach 2.4 billion euros, with the net result, excluding gains from asset rotations, at 689 million euros, according to the consensus provided by Visible Alpha. “In light of the likely reduction in capex and falling electricity prices, these estimates may prove to be optimistic.”
Looking at the current share price, GS considers that “there is no value in terms of future growth”. “Based on our assessment of existing assets (13.3 euros/share), we can conclude that EDPR is currently discounting almost no value from future capacity additions.” “When evaluating existing assets, we do not assume future growth beyond 2024,” he adds.
Analysts believe that “a reset expectations” can be an opportunity to start from scratch. “EDPR should seek a more sustainable growth rate, which implies (potentially) lower execution risks and higher returns. This would also imply a stronger balance sheet.”
EDP Renováveis profit rises 4% but investment declines
EDP Renováveis’ profits rose 4% to 68 million euros in the first quarter compared to the same period last year.
The result was “impacted by a lower contribution from top line and the increase in taxes, due to the tax treatment of gains from asset rotation, and offset by a reduction in net financial costs and non-controllable interests (-11% year-on-year)”.
Thus, revenues fell 11% to 632 million euros, impacted by the lower average sales price (-3%) and lower energy production (-3%).
The company reveals that the average selling price fell by 3% to 61 euros/MWh, “reflecting the lower prices on the electricity market in Europe. The comparison compared to the previous year was also driven by the downward regulatory review of 2023 electricity prices for regulated assets in Spain, announced in June 2023.
Production also fell by 3% to 9.9 TWh, impacted by the rotation of wind assets in the last 12 months, with the sale of 256 MW in Spain, 142 MW in Poland and 260 MW in Brazil, a country where production fell by 54% with deconsolidation and planned maintenance in several projects, “which required the periodic suspension of operations, and slightly lower renewable resources compared to the previous year”.
Gross investment fell 23% to 759 million euros, “with more than 80% of its operational investment in Europe and North America, reflecting EDPR’s focus on its low-risk core markets”.
Taking into account asset rotation transactions, an inflow of 300 million, net expansion investment reached 900 million (-8%).
In turn, net debt soared from 900 million to 6.7 billion, “reflecting the investments made in the period”.
Financial results fell 14% to 108 million, “impacted by the strategy of rebalancing the debt’s exchange rate mix, with an increase in the euro (€) and a reduction in the dollar (USD), and by the increase in capitalized financial expenses, due to delays in execution of projects along with maintaining the cost of debt at 4.66%, due to the lower cost of debt from new refinancings”, according to the statement.
Goldman Sachs predicts cut in 30% in investment by EDP Renováveis
Goldman Sachs recently revealed that it expects EDP Renováveis to reduce its investment by 30% in the coming years, pressured by falling energy prices and rising financing costs.
“Given the continued reduction in energy prices (…) we expect EDPR to provide a strategic update (taking into account 2026 targets). To reflect higher financing costs and lower energy prices, we expect this to lead to a reduction of around 30% in gross renewables capex”, can be read in the note released in April.
Analysts point out that although it could be seen as negative (with Bloomberg’s consensus estimates potentially falling), GS believes it could be slightly positive for two reasons.
“First, our conversations with investors suggest that the buyside already anticipates a cut in capex. Secondly, the current share price implies that there is no value for future power additions”, with GS pointing out that the shares trade below their valuation for existing assets (13 euros).
“In our view, reducing investments would reduce execution risk and could potentially suggest a shift in capital allocation to favor value over volume.”
According to EDP’s 2023-2026 business plan, the Portuguese company expects to invest 25 billion euros during this period: 21 billion (85%) in renewable energy and four billion (15%) in electricity networks, an investment annual average of around 6.2 billion euros.
The company expects to add 4.5 gigawatts of renewables per year, for a total of 18 gigawatts by 2026 to reach 33 gigawatts of renewables by 2026, and to reach 50 gigawatts by 2030.
