Spain’s electricity sector has once again become the red lantern of the Stock Exchange, a day after the government approved a package of measures aimed at lowering the electricity bill. Today, Endesa and Iberdrola are down 1.7% each. Yesterday, the biggest penalty was for Endesa, closing at 5%. The 1.55% Iberdrola cut was somewhat milder. Within two days, both securities lose 4,400 million euros of market value between them.
The temporary reduction in the bonus surplus obtained by the electricity companies as a result of the rise in gas prices, and the reduction of taxes. Reducing gas rises, more control over hydropower plants and implementing regulated tariff reform or PVPC are some of the measures included in the Royal Decree-Law which was approved by the Cabinet yesterday.
Not only do these new measures have a direct impact on the prices of companies in the sector, many analytics firms have revised downward valuations for their own sake. This is the case of Goldman Sachs, which lowered Iberdrola’s target price to €13 from €13.8, while Endesa’s price is €22 from €23.5.
As estimated by Goldman Sachs, this is an average EPS reduction of 5% for incumbents from 2022-25. In addition to the previously reported “carbon recovery,” he estimates the overall impact on EPS for 2022-25 is an average of 10% for Iberdrola and 15% for Endesa.
The investment bank adds: “These measures appear to be inconsistent with the current design of the energy market, and appear to be a step towards partial regulation of energy bills. As we saw in 2013, this may violate the EU Energy Directive.”
Bankinter explains that this is bad news for the sector, not only because of the direct negative impact on corporate value of yesterday’s actions but also because it highlights regulatory uncertainty for the sector, an idea he shares. With Citi Analysts.
They calculated from Bankinter that despite the fact that the scope of the royal decree is only temporary, it represents a regulatory change that has a negative impact on legal certainty. Of the 2,600 million euros in direct impact on electricity companies due to yesterday’s actions, it is estimated that 1,221 million euros will offset Iberdrola, 976 million euros for Endesa, 188 million euros for Naturgy, 144 million euros for Acciona and 71 million euros for Iberdrola. Euro EDP.
In terms of its market capitalization, the largest influence is Endesa (4.7% on its share capital of 20,550 million euros), followed by Iberdrola (1.9% on 64,170 million euros), Acciona (1.4% on 10,207 million euros), Naturgy (0.9%) more from 21,176 million euros) and finally EDP (0.4% more than 10,127 million euros).
Of the €3200 million total impact, including CO2 reduction, Iberdrola will cost €1525 million, Endesa €1.220 million, Naturgy €235 million, Acciona €180 million, and €80 million EDP, as well as Bankinter adds.
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