Redeia Earnings: EBITDA in Line With Expectations; Shares Fairly Valued

We are maintaining our EUR 16.50 fair value estimate for no-moat Redeia RED. The group’s first-quarter EBITDA was roughly in line with consensus expectations at EUR 401.8 million, up 1.6% year over year, but net income declined just under 1% versus the first quarter of fiscal 2022 as the sale of 49% of Reintel in June 2022 increased noncontrolling interests. We currently view the shares as fairly valued.

Transmission system operator and satellite segment EBITDA declined in the quarter (0.6% and 10.5%, respectively) but was offset by 45% growth in the international business with project commissions in Chile and Peru and investee profits. TSO EBITDA was dragged down by increased maintenance costs, while the satellite business suffered from scheduled discontinuations of service. The TSO segment continues to make up the bulk of Redeia’s business, accounting for more than 79% of revenue and almost 76% of EBITDA in the first quarter. The Spanish and French energy regulators agreed in early March regarding the financing of the Bay of Biscay project, which is anticipated to increase interconnection capacity to 5.0 gigawatts from 2.8 GW.

Management confirmed its previously communicated fiscal 2023 guidance of EBITDA greater than EUR 1.5 billion and net profit approximately the same as fiscal 2022 (EUR 665 million). TSO investments are anticipated to reach more than EUR 700 million in 2023. Management updated its 2021-25 capital expenditure plan, increasing the target to EUR 4.8 billion in expenditures with approximately EUR 3.7 billion going to TSO, EUR 700 million to telecommunications, and EUR 300 million to the international segment. So far, 26% of TSO, 41% of telecommunications, and 100% of international investment targets have been reached, with an additional 20% of TSO and 40% of telecommunications targeted investments estimated to be made in 2023.