EDP Sets 2026 Guidance Above Our Estimates; Will Launch a Tender Offer on EDP Brazil; Shares Cheap

We don’t expect to materially change our fair value estimate of EUR 6 for no-moat EDP EDP after it announced an equity raise of EUR 1 billion to fund a tender offer for full ownership of subsidiary EDP Brazil.

The cash offer price is BRL 24 per share, 22% above the last closing share price. The move makes sense since EDP Brazil is a fast-growing business. Also, it could reduce the material holding discount of EDP. The dilution of the equity raise will be offset by the 2026 earnings guidance above our estimates.

The targeted dividend payout range is now 60%-70%, lower than previously stated at 75%-85%. Positively, the dividend floor is increased from EUR 0.19 per share to EUR 0.195 in 2024-25 and EUR 0.2 in 2026, implying the first dividend increase since 2012.

EDP ended fiscal 2022 beating both our own and consensus EBITDA expectations at EUR 4,524 billion but falling short of our net income forecasts (EUR 679 million versus EUR 765 million).

EDP increased targets across renewables, battery storage, and networks from its previous 2021-25 business plan. These updates bring into sharp focus energy transition demand and opportunities for EDP to grow its installed capacity beyond its current 22.4 gigawatts. North America and Europe account for 80% of the intended EUR 25 billion of gross investments for 2023-26. Previously, target capital expenditure was EUR 24 billion for 2021-25. Of the planned EUR 25 billion, 85% is to be focused the renewables and clients and energy management segments, with electricity networks receiving the final 15%.

Recurring net income annual average growth has been increased to 12%-14% from 2022-26 (previously 8% from 2020-2025). This points to a 2026 recurring net income of EUR 1.4 billion-EUR 1.5 billion, above our EUR 1.35 billion estimate.