Iberdrola Reports Strong First Half; Quells Concerns Over Brexit
Spanish utility, Iberdrola (IBDRY) , gave investors grounds for optimism on Wednesday after reporting a small increase in Ebitda and a double digit increase in earnings from continuing operations for the first half of 2016. The group also reassured the market that it has been largely unaffected by the pound's depreciation in the wake of the U.K.'s vote to leave the European Union.
Revenues fell during the first half, by around 7%, €14.9 billion ($16.3 billion). Ebitda for the group rose by 1.4% to €3.89 billion while earnings from continuing operations jumped by 13.9%, to €1.42 billion.
Ebitda was higher during the period as a result of improved operating efficiencies, the company said, and earnings were boosted at the bottom line by effective foreign exchange hedging and the presence of foreign exchange losses in the past comparison period.
Management stated that the group "immunized" itself against variations in the euro-pound exchange rate ahead of the U.K. referendum and as a result, do not expect a depreciated pound to have any negative impact on the full year result. The drop in the pound after the Brexit referendum was previously a concern for investors given that Iberdrola derives around a quarter of its earnings from the U.K.
Shares of Iberdrola rose by as much as 1% in early European trading, to reach as high as €6.05, as investors and traders responded to the announcement.
Iberdrola saw distributed electricity fall by 1% in its largest market, Spain, despite an 18.4% increase in net production. Distributed electricity also fell by 2.5% in the U.K., a market which accounts for around 25% of group Ebitda, although it jumped by 11.4% in the Iberdrola's third largest market, the U.S.
Analysts at Credit Suisse have an outperform rating attached to the shares and a price target of €6.70, which implies 12% upside from the current level. They state that much of the bad news stemming from lower energy prices and tough macroeconomic environment is already priced in to the shares, while under their best case scenario, Credit Suisse said there could be as much as 14% upside to Iberdrola shares.
Other key factors behind the rationale of Credit Suisse's rating include, Iberdrola's focus on transmission networks, which provides a steady stream of revenues and good visibility over pricing.