Naturgy: Raises 2025 EBITDA Target in Line With Our Estimate and Increases Dividend

We maintain our fair value estimate of EUR 25 after no-moat Naturgy’s NTGY board of directors updated the 2021-25 strategic plan by raising its 2025 EBITDA estimate roughly in line with ours, lowered its investments budget in line with our estimate, and raised its dividend floor over 2023-25 by 14% from EUR 1.2 to EUR 1.4 per share, implying a 5.5% yield. By reducing investments and increasing its dividend, the firm switched back to the policies of its 2018-22 plan. Further details on the revised plan will be provided with the first-half results on July 24. At the current share price, we don’t see enough margin of safety to buy the shares.

Naturgy has raised its 2025 EBITDA target from EUR 4.8 billion to EUR 5.1 billion, slightly above our EUR 5.03 billion, but above FactSet consensus of EUR 4.8 billion. We believe the raise is chiefly driven by the increase in gas and power prices since the 2021-25 strategic plan was released in July 2021. On the other hand, the firm lowered its 2021-25 investments envelope from EUR 14 billion to EUR 13.2 billion, in line with our estimate. We believe this is attributable to lower renewables capacity targets, which would confirm our view that this laggard in the renewables segment would fail to deliver the 2.35 gigawatts of average annual capacity additions it aimed for over 2021-25. Last, the group lowered its 2025 net debt target from EUR 16.9 billion to EUR 16 billion, in line with our EUR 16.1 billion estimate.

The company confirmed the strategic rationale of the Gemini project, although it said it contemplates execution alternatives, which could mean that some or all the businesses will be delisted. Initially, the project aimed to split the company into regulated and liberalized businesses as two listed entities. Naturgy didn’t provide a timeline for the completion of the project, initially due by the end of 2022.