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Investing.com -- Bernstein downgraded Spanish utility Redeia (BME:REDE) to “market-perform” from “outperform” and cut its price target to €18.15 from €20, citing higher-than-expected work in progress and slower growth in regulated earnings, in a note dated Monday.
The brokerage said Redeia faces a period of low earnings growth, no dividend growth, and increasing balance sheet pressure.
“We now see higher (and growing) work in progress (WIP) vs previously expected. The WIP is poorly remunerated and only once the assets are commissioned (5-7 years later),” Bernstein said.
The brokerage estimates that Redeia will complete only about 75% of the government-mandated €12 billion capex plan for 2025-2030, implying an increase of just €450 million over previous guidance.
This delay is expected to depress the company’s regulatory asset base (RAB), earnings, and cash flows.
Funding the capex will require the issuance of €1.5 billion in new hybrid bonds, Bernstein said, adding that the financial costs of these hybrids are deducted from equity rather than reported in net debt.
“Funding the plan will require mitigation measures and we see no growth in DPS,” the brokerage said, with the dividend expected to remain flat at €0.8 per share through 2030.
Bernstein sharply reduced earnings forecasts, cutting adjusted EPS by 12% in 2026 and 16% in 2027. By 2027, adjusted EPS is now projected to be about 14% below consensus.
The brokerage also anticipates a 2024-2030 adjusted EPS CAGR of just 3.4%, down from 8.4% previously, reflecting lower RAB, issuance of hybrids, and weaker contributions from fiber optic and Latin American operations.
The analysts said the mandatory capex plan, which covers 27.7 GW of new demand including industrial, residential, green hydrogen, and renewable projects, is unlikely to be executed fully on time.
Bernstein now forecasts total 2025-2030 capex of €9.15 billion, with annual spending of €1.45 billion in 2025-2027 stepping up to €1.6 billion in 2028-2030.
By 2030, work in progress is expected to reach €3.4 billion, lowering the RAB to €13.0 billion from prior estimates of €14.7 billion.
The brokerage highlighted potential rating pressure, with the FFO/net debt ratio likely falling below the 15% threshold required to maintain an A- rating.
Bernstein estimates the ratio will decline to 11% by 2030 absent further hybrid issuance.
Despite the government’s new capex plan and anticipated regulatory improvements, Bernstein added that the upside for Redeia shares is limited.
“Our new PT provides just ~10% upside potential Beyond the to earnings consensus, the company faces a period of low earnings growth, no dividend growth and balance sheet deterioration,” the brokerage said.
Relative to Italian peers Terna and Elia, Redeia is expected to trade at a small discount to Terna and a small premium to Elia on a 2025 RAB basis, with the discount narrowing further by 2030.