We have intensively analyzed Enagás (OTCPK: ENGGF) (OTCPK: ENGGY) in the past and today we would like to provide an update following the recent Q4 and FY results. Overall looking at Wall Street analyst consensus and management expectation, Enagás achieved a better target than the company had set in the past. Net profit declined to 403.8 million euros with a minus 9% compared to the previous year results, but above the previous goal set at 380 million euros.
Moreover, the Spanish pipeline company has undertaken a renovation of its leadership team with a new CEO that is coming from Repsol (OTCQX: REPYY). As already covered by the press, Enagas stressed that the newly appointed CEO has “Extensive experience” in the energy field. More in detail, he holds expertise in the regulatory area and environmental fields. “His profile is suited to the needs of the company at this time of transition, in which European regulatory issues are going to be decisive in its future, as well as the definition of the role of the TSOs in the decarbonization process” Enagás explained in a statement. In the public sector, he held several positions and he has also been president of the Spanish Committee of the World Energy Council. The board of directors appointed four other independent directors and after last year’s CNMC decision, we really hope that the new CEO will proactively work to improve gas remuneration.
Fiscal Year Results
According to data managed by Enagás, the total demand for natural gas last year reached 378.4 TWh, 5.1% more than in 2020, mainly motivated by economic activity recovery. The company’s results have also been conditioned by the energy crisis, which has as one of its causes the volatility of the international price of natural gas and which is turning the structure of Spain’s gas suppliers upside down due to geopolitical tensions in Russia and also in Algeria . Despite that, Enagás reached a turnover of 1,082 million euros with a minus 8.6% compared to last year-end results.
Enagás offset part of the regulatory blow thanks to the better performance of its affiliates. The contribution of these companies amounted to 217.6 million euros, compared to 174.8 million euros in 2020.
FFO reached 700.7 million euros, up by 1.9%. This was due once again to the positive, among other effects, to the dividends received from the investee companies (TAP in particular). Of this amount, 22.8 million corresponded to the distribution of a dividend by the US energy company Tallgrass Energy charged to the 2020 financial year and collected in 2021. In addition, the group has reduced its net debt position by a small amount. Debt profile has always been a criticism by the investor community and we consider this slight reduction as a positive catalyst.
Source: 2021 Full Year Results
Ardian and FiveT Hydrogen funds have also entered into a JV with Enagás. The investment will be made through the Clean H2 Infra Fund through a capital increase in Enagás Renovable obtaining a 30% stake, with Enagás retaining the remaining 70%.
Enagás Renovable was founded in 2019 and has a portfolio of more than 50 specific projects in Spain in the field of renewable gases and decarbonisation, which makes it one of the largest European platforms for renewable gas projects.
The most advanced projects represent more than 750 MW of electrolysis, which have an estimated commercial operation date between 2023 and 2026 and account for around 20% of Spain’s hydrogen target in terms of installed capacity by 2030.
Source: 2021 Full Year Results
Conclusion and Valuation
Enagás will propose to its next General Shareholders’ Meeting the payment of a dividend corresponding to 2021 of 1.70 euros gross per share, which represents an annual increase of 1%, in line with the company’s strategy, which has guaranteed the distribution of dividends until 2026 As we previously stated, the Spanish gas operator looks very attractive from a valuation standpoint. Moreover, the company is currently yielding more than 9%. Hydrogen upside, pure ESG player, and solid results from affiliates lead once again into a buying opportunity. We support the upside thanks to a supportive DCF and a juicy dividend payment. We continue to hold Enagas comfortably with a 1-3 year time frame opportunity.
You can check our valuation in our previous coverage:
- Cost-Cutting Advances And Affiliate Income Continue Enagas Earnings Development
- Enagas Sees Remuneration Reductions, But Still Offers Inflation Protection And Opportunity In Hydrogen
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