S&P Global Ratings today said that Italian energy giant Enel SpA's 2019 results were in line with expectations. The group's EBITDA growth more than offset the anticipated increase in net debt, which stemmed from an acceleration of capital expenditure (capex) and a dividend increase. Enel (BBB+/Stable/A-2) has also confirmed its 2020 guidance and 2020-2022 strategic plan targets, considering a minimal impact from COVID-19 at this stage. We note that Enel's ample liquidity can comfortably handle the group's debt maturities over the coming two years.
In 2019, Enel's EBITDA increased 10.8% year-on-year to €17.9 billion, broadly in line with our base case, thanks to the stronger-than-expected performance in the networks and conventional (thermal and nuclear) generation divisions. Networks benefitted from the consolidation of Enel Distribucao Sao Paolo in June 2018, and the conventional generation and trading division benefitted from higher nuclear production in Spain and larger generation margins in the Fortaleza plant in Brazil. Reported net financial debt increased by about 10% year-on-year to €45.2 billion (6% excluding the impact of International Financial Reporting Standards 16). This is because the group's capex picked up by 22% year-on-year to €9,947 million, and dividends rose to €2,845 million in 2019 from €2,410 million in 2018. We note that, in the last quarter of 2019, Enel installed 2.4GW of the 3.0GW of renewable capacity added that same year, which is expected to contribute EBITDA of €320 million in 2020. We estimate that Enel's funds from operations (FFO) to debt, as adjusted by S&P Global Ratings, will be close to the 22% target for the current 'BBB+' rating in 2019 and above the target over 2020-2022.
Enel has announced its assumptions of a limited impact from the COVID-19 pandemic on its global operations at this stage. Moreover, the group does not anticipate pronounced setbacks from the low power price environment. This has led Enel to reiterate its 2020-2022 guidance.
We are monitoring the evolution of the situation closely, especially of any potential increased political risk in Italy, with regards to the following:•
- Impact from COVID-19: Enel mentioned that it is experiencing a drop in industrial demand, only partially offset by higher residential volumes. At the same time, Enel stated that its retail margins are well above industrial ones and this should offset lower volumes.
- Impact from lower power prices: Enel's management acknowledged that power prices should be lower than its strategic plan forecast. We note that while prices in Italy and Spain are almost fully hedged for 2020, Italy is 20% hedged and Spain 60% for 2021. Therefore, any related EBITDA challenges are more likely to emerge in 2021. Still, we anticipate that the group will be able to work around difficulties thanks to higher margins in the generation division and as margins are managed in an integrated way between generation and retail divisions.
We also recognize Enel's comfortable liquidity position, with €24.7 billion of liquidity available via cash and committed credit lines. As a result, the group has substantial room to cover its debt maturities of €7.4 billion in 2020 and €3.6 billion for 2021.
S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak in June or August, and we are using this assumption in assessing the economic and credit implications of the pandemic. We believe measures to contain COVID-19 have pushed the global economy into recession and could cause a surge of defaults among nonfinancial corporate borrowers (see "COVID-19 Macroeconomic Update: The Global Recession Is Here And Now" and "COVID-19 Credit Update: The Sudden Economic Stop Will Bring Intense Credit Pressure," published March 17, 2020). As the situation evolves, we will update our assumptions and estimates accordingly.
Related Research
• Enel, ESG, and Credit Ratings, Jan.20, 2020
• Enel Is Clear To Accelerate Growth In Renewables While Building Comfortable Rating Headroom, Dec. 5, 2019
• The Energy Transition: What It Means For European Power Prices And Producers, Nov. 7, 2019
• Full Analysis: Enel SpA, Aug. 2, 2019
• Equity Content Of Some Existing Enel Hybrid Debt Revised Following Enel's Recent €900 Million Hybrid Issuance, May 28, 2019
• Enel's Proposed Junior Subordinated Hybrid Capital Securities Rated 'BBB-', May 15, 2019
• Regulatory Support Is Powering Latin America's Utilities, March 8, 2019
• What Spain's Slower Phaseout Of Nuclear Energy Means For Power Producers, March 7, 2019
• Enel Americas' Planned $3.5 billion Capital Increase Will Also Be Positive For Enel SpA, Feb. 28, 2019
This report does not constitute a rating action.
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