Monday, January 24

Red Eléctrica exhausts its upward potential


Red Eléctrica has experienced excellent performance on the stock market since last February. After hitting the lows of the year that month, it rises 37 percent (although its revaluation so far this year is reduced to 9.84 percent).

Under these circumstances, analysts believe it has exhausted its potential and has few catalysts left to keep the move up.

“Given the excellent performance of the price in recent months, we reiterate our recommendation to underweight, since we do not see potential from current levels and we discard additional catalysts in the short term,” writes Ángel Pérez, an expert on Renta 4.

Red Eléctrica sells 49 percent of Reintel to KKR

Not even the recent sale of 49 percent of the company’s telecommunications division, Reintel, to the North American fund KKR for 971 million euros is a factor that could significantly encourage the price, in the eyes of analysts.

They should not be misguided, as the value fell 3.8 percent in the stock market this Friday after hearing the news.

So what the operation is valued positively by the experts.

“The news is very positive, the cash inflow will give the group greater financial capacity to assume its investments foreseen in the strategic plan allowing some improvement of its financial structure and, although it was an operation that was expected, the final price has us very positively surprised, ”says Ángel Pérez.

A favorable operation for Red Eléctrica

Also Aránzazu Bueno, from Bankinter, believes that the operation is “good news for Red Eléctrica” ​​for various reasons.

First, because it fits with the provisions of the group’s 2021-2025 Plan, which contemplates the enhancement of strategic assets, through the potential sale of minority stakes.

“The operation means freeing up group funds to be able to focus on making investments in its electricity transmission network business in Spain in the 2021-2030 period to contribute to the success of the energy transition,” explains Bueno.

Likewise, the price obtained by Reintel exceeds market estimates, assuming a valuation for the company as a whole of 1,981 million euros.

“The press rumored a value of between 1,300 and 1,800 million for the entire fiber optic group. Reintel’s EBITDA estimated for 2021 is 104 million euros, so the sale price represents a multiple of 22.1 times the gross operating profit (EBITDA) of the company, ”says Bueno.

Finally, the sale offers greater visibility into the group’s dividend in the future.

“The operation enables the group’s future investments in the telecommunications division to be shared with a partner and improves the group’s financial position. This leads to an improvement on the visibility of the future dividend payment of the group (1 euro per share in 2021-22 and 0.80 euros for 2023-25 ​​”, adds Bueno.

Abulia regarding Red Eléctrica in the consensus of analysts

However, the benefits of the operation fail to lift the analysts’ spirits regarding the future stock market performance of the company.

In fact, Ángel Pérez’s apathy regarding Red Eléctrica is a sensation that is widely shared in the market, as reflected in the Bloomberg consensus.

Specifically, 7.7 percent of experts recommend buying (2 analysts); 34.6 percent advise maintaining (9 analysts); and a majority 57.7 percent (15 analysts) believe that it is better to cash and sell.

The price target given by analysts also shows signs of exhaustion of the bullish streak.

Specifically, the consensus gives it a target price of 16.79 euros, below the current price of 18.41 euros, a circumstance that gives it a negative potential of -8.8 percent.

In this context, Société Géneérale lowered its recommendation on December 14 to sell from retain.

For his part, Ángel Pérez, from Renta 4, had already lowered his advice to “under-return” from “over-return” at the end of October.



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