Endesa's Q1 Surge: A Turnaround Driven by Tax Relief and Strategic Growth

Endesa’s first-quarter 2025 net profit soared to €583 million, marking a dramatic recovery from the €292 million reported in Q1 2024 and far exceeding market expectations of €462.5 million. This turnaround underscores the power of regulatory shifts, operational resilience, and strategic investments in navigating volatile energy markets. Below, we dissect the drivers of this performance and its implications for investors.

Financial Breakdown: Tax Relief Fuels Recovery

The removal of Spain’s 1.2% non-deductible sales tax—a key drag on Q1 2024 earnings—played a pivotal role in unlocking profitability. This regulatory reprieve, combined with improved gas margins and stronger performance in deregulated businesses (generation and supply), propelled net profit to double year-on-year.

• EBITDA surged 33% to €1,431 million, driven by cost discipline and higher gas profitability, while pretax profit jumped 73% to €774 million.
• Funds from operations (FFO) skyrocketed to €1.2 billion, a sixfold increase from Q1 2024, signaling robust cash flow despite rising working capital needs.

The net financial debt/EBITDA ratio of 1.8x further highlights financial health, with debt at €10.16 billion remaining manageable amid capital-intensive projects.

Operational Momentum: Gas and Renewables Lead the Charge

Endesa’s generation and supply segments were standout performers, with EBITDA rising 20% to €1.0 billion. This reflects both the tax relief and stronger gas margins amid rising demand for thermal power. Despite electricity pool prices surging 90% to €85/MWh due to geopolitical tensions, Endesa’s hedging strategy—95% of 2025 in-house production pre-sold—mitigated volatility risks.

In renewables, Endesa’s 90% renewable penetration in mainland Spain (up 7% YoY) and 10,000 MW total renewable capacity solidify its leadership in sustainable energy. Strategic moves like acquiring 626 MW of hydro assets and monetizing solar projects (selling 49.9% of a 400 MW portfolio) underscore a balance between growth and liquidity.

Strategic Priorities: Grid Investment and Regulatory Advocacy

CEO José Bogas emphasized the need for regulatory reforms to incentivize grid investments, critical as Spain’s reindustrialization drives 2.5% YoY demand growth. Endesa’s €2 billion share buyback program (with €500 million already executed) signals confidence in its ability to navigate challenges like rising gas prices (+71% to €47/MWh) and regulatory uncertainties.

Challenges Ahead: Volatility and Grid Modernization

While the results are encouraging, risks persist. Geopolitical tensions and commodity price swings could disrupt margins, while grid bottlenecks threaten to limit renewable integration. Endesa’s €412 million annual capex (70% targeting grid and renewables) aims to address these issues, but regulatory delays could slow progress.

Conclusion: A Strong Foundation for Long-Term Growth

Endesa’s Q1 2025 results are a testament to its ability to capitalize on regulatory tailwinds and operational agility. With net profit doubling, EBITDA hitting €1.4 billion, and a debt/EBITDA ratio under 2x, the company is well-positioned to execute its strategy of grid modernization and renewable expansion.

Investors should note the €1.2 billion FFO and €500 million share buybacks as positive signals of cash generation and shareholder focus. While risks like gas price spikes and regulatory lags remain, Endesa’s progress in renewables and grid resilience positions it as a key player in Spain’s energy transition.

For now, the doubling of net profit and strong EBITDA growth justify optimism—especially as the company eyes €2 billion in annual targets. With tax burdens eased and strategic moves underway, Endesa’s trajectory points upward, making it a compelling play on Europe’s energy evolution.