RBC cuts Endesa rating, cites regulatory risk and earnings weakness

Investing.com -- Endesa SA (BME:ELE) has been downgraded to “sector perform” from “outperform” by RBC Capital Markets, which also cut its price target to €26.50 from €28.50, in a note dated Monday. 

The downgrade follows a 13% year-to-date share price gain but is driven by weaker fundamentals, primarily regulatory uncertainty and revised nuclear assumptions impacting earnings.

The Spanish regulator’s draft proposal on electricity distribution remuneration outlines a WACC of 6.46%, in line with expectations but below the near 7.5% hoped for by utilities. 

More concerning is a 60-40% sharing mechanism of operational cost savings, which results in a 24% cut to opex remuneration, approximately €0.5 billion across the sector. 

The net effect would reduce distribution revenues by over 2% in 2026, contrasting with Endesa’s guidance of a €200 million improvement. 

RBC warns that unless the proposal is significantly revised, Endesa’s outlook on distribution growth appears optimistic.

The brokerage also adjusts expectations on nuclear plant life extensions following an unconfirmed Expansion report, suggesting shorter extensions than previously modeled. 

RBC now forecasts Endesa’s nuclear closures occurring around 1.6 years earlier than its prior estimate, despite being 1.4 years longer than the existing agreement. 

The revision reduces FY25 net income by over 2% and contributes to a 9% cut in FY25 earnings. Nuclear assumptions now account for Endesa’s FY25 net income projection exceeding company guidance.

RBC reduced its FY25 EBITDA estimate by 3.5%, bringing it within Endesa’s guided range. Net income, however, now falls below consensus. 

Across 2025–2027, average EBITDA and net income are lowered by 2.3% and 6.6% respectively. 

Adjusted EPS is now forecast at €1.90 for FY25, down from €2.09, and dividend per share at €1.33, revised from €1.47.

Despite trading at a 2025E P/E of 14x, slightly above the 13x sector average, Endesa’s EV/EBITDA multiple stands at about 7x, well below the near 9x sector average. 

RBC attributes this valuation gap to underinvestment in networks, which hinges on improved regulatory returns. A final regulatory decision is expected in October 2025.

The brokerage also notes that around 50% of Endesa’s share buyback program has been completed, though progress was briefly paused due to share price constraints. Enel (BIT:ENEI) maintains a 70.1% ownership stake in Endesa.