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EDP Renovaveis

We have reinitiated coverage of EDP Renovaveis with a fair value of 22 Euros.

Morningstar 21/09/2022 17:45:00
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We reinitiate coverage on EDP Renovaveis (EDPR) with a no-moat rating and fair value estimate of EUR 22, implying a price/fair value of 1.1. The overvaluation reflects too-upbeat expectations on capacity additions beyond 2025, in our view. On the other hand, valuing EDP Renovaveis with a net present value enables us to fully capture value of future projects—which leads us to increase our fair value estimate of parent company EDP by 20% to EUR 6 from EUR 5, involving a price/fair value of 0.83. All in all, buying EDP shares allows investors to get EDP Renovaveis at a discount.

With 13.6 gigawatts of installed capacity (mostly onshore wind) at the end of 2021, EDP Renovaveis is the world's fourth-largest renewable energy producer, and the third largest in the U.S. and Europe. This enviable position stems from an early-mover advantage reflecting savvy capital allocation and strong execution. Capacity doubled between 2010 and 2021, driving a 20% EPS CAGR in the meantime.

Of the group's installed renewable production capacity, 60% is covered by power purchase agreements, 20% by regulatory subsidies and 20% sold at merchant power prices. The weighted average remaining years of PPAs and subsidies is 12 years. The high share of fixed revenue is in an intangible asset moat source. However, it is not sufficient to drive an economic moat due to the high upcoming capacity growth and lack of barriers to entry in the wind and solar industries.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
EDP - Energias de Portugal SA4,48 EUR-1,67Rating

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