Iberdrola (IBDRY, $31.07): “Headwinds and Tailwinds on the Horizon for Iberdrola”
By:
Derek Grifka, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Iberdrola SA Sponsored ADR. (OTC:IBDRY) is a Spanish electric
utilities company that distributes electricity and gas with an increasing
emphasis on renewable energy. The company had over 34 million users across the
globe in 2016 with 46% of revenue coming from Spain, 23% from the UK, and
almost 21% from the US. Its primary facilities include more than 300 windfarms,
over 100 hydro power plants, and hundreds of other power plants.
• Expansion in the Baltic
Sea is providing energy across Germany.
• Political uncertainty
in Spain presents danger for the company.
• Success in Brazil has
greatly helped the company, thanks to increased wind generation.
• H1 2017 slow compared
to exceptional H1 2016.
Key
points:
70 wind turbines have
been installed off the coast of the German island of Rugen, as of late October
2017. The 350 megawatt home should be able to power around 350,000 homes across
the globe and save the environment 600,000 tonnes (1,000 kg) of CO2 emissions.
This project created about 2,000 construction jobs.
Although only 5.4% of the
company’s total revenue comes from Brazil, the country is becoming a major
player in the company’s success. In August of 2017, the company decided it
would incorporate the activity of its Brazilian subsidiary, Elektro, into Brazilian
power distributor, Neoenergia.
This merger makes the
company the largest electricity utility in Brazil, servicing more than 34
million people. Both companies combined for total FY 2016 revenue of 7.9
billion euros. Additionally, Iberdrola as a whole is reporting success in
Brazil and reported about a 99% increase in wind generation in Brazil during Q3
2017.
Although H1 2017 was
slower than H1 2016, the company is still seeing some positives. Its net profit
grew 4.2% to 1.5 billion euros and it still maintains a generous dividend of
3.4%. However, Q1 EBITDA dropped 8.2% and fell 3.6% in Q2. Despite success
across the globe, Spain saw lower output compared to the exceptionally high
2016.
What
has the stock done lately?
The Catalan crisis in
Spain caused the stock to dip to a low of just above $29 from mid-August to
October 4th. In that time span, the stock decreased over 10%. The
Catalan region of Spain is seeking independence to become its own independent
and sovereign country because many inhabitants believe the unemployment
throughout the country is slowing the region. Catalonia accounts for about 19%
of Spain’s GDP, so if the region were to enact independence, this could have
adverse effects on the company. However, the stock has rebounded in the recent
weeks, mostly due to confidence that the break-up will not occur. This
confidence comes with the ability of the Spanish government in Madrid to
observe Article 155, which allows the government to intervene in the running of
Catalonia.
Past
Year Performance: Despite the recent blip due to the Catalan
government crisis, the stock has done almost nothing but rise. In the past
year, the stock rose over 19% with little volatility. Coupled with a strong
dividend and a 52 week beta of -0.37, the stock is a rather safe investment
with growth potential.
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| Source: FactSet |
My
Takeaway
