Enel's Strong Financials and Buyback Plan Bolster Investment Case

Enel SpA reported strong progress and a buyback program, strengthening our investment case. The company's first-half financial results show improvement compared to Engie. We are resuming analysis of Enel, maintaining a buy rating for the company.

Enel SpA (ENLAY)(OTCPK:ESOCF) has reported robust progress in its first-half financial results, further solidifying its investment case. The company's performance stands out compared to Engie, with significant improvements in various operational segments. Enel's strategic position has been bolstered by the successful completion of its divestment program, which has helped strengthen its financial health.

Key highlights of Enel's H1 2025 results include:

- Revenue Growth: Enel's sales reached €40.81 billion, marking a 5.4% increase compared to the same period last year. This growth was driven by higher thermal generation and trading sales, benefiting from greater electricity distribution and tariff adjustments in Italy and Argentina.
- EBITDA Performance: The company's ordinary EBITDA reached €11.5 billion, a 0.9% increase compared to H1 2024. However, on a reported basis, EBITDA was down by 11% due to the recent disposals. When adjusted for the same scope, net profit rose by €160 million (+4.4%) to €3.8 billion.
- Divestment Impact: The divestment plan, completed last year, has shown its positive effects. On a reported basis, EBITDA was down by 11% due to the disposals. However, margins were also impacted by lower average prices applied to end customers, especially in Italy.
- Renewable Energy: Enel's renewable energy segment reported a lower hydro volume, similar to the trend observed with Engie. Despite this, the company remains committed to achieving net-zero emissions by 2040, with 85% of its electricity production now coming from zero-emission sources.

Enel's capital allocation priorities and strategic focus on renewables have been evident in its recent announcements. The company has initiated a €1 billion share repurchase program, with the potential for a total buyback of up to €3.5 billion until 2027. This move is expected to reduce share outstanding, thereby boosting earnings per share (EPS).

Additionally, Enel has demonstrated a strong commitment to cost efficiency, achieving 67% of its 2025-27 target, with a total achievement of €1 billion. The company's network division has also seen progress, with the renewal of concessions in Italy and Brazil remaining on track.

Looking ahead, Enel expects an EBITDA of €11.4-11.6 billion for the second half of 2025. The company's management has also provided an outlook for net ordinary profit at the higher end of the forecast, with supportive earnings acceleration expected by 2027.

Risks and Outlook: While Enel's performance has been impressive, several risks remain, including energy price normalization, FX changes, cybersecurity risks, wage inflation, and higher rates. Despite these risks, the company's strong financial position and strategic focus on renewables provide a solid foundation for future growth.

Conclusion: Enel SpA's strong H1 2025 results and the initiation of a significant buyback program further bolster its investment case. The company's strategic focus on renewables and cost efficiency, along with its robust financial performance, make it a compelling investment opportunity. However, investors should remain vigilant to the risks associated with the utility sector.

References:
- [1] https://seekingalpha.com/article/4808023-enel-strong-progress-and-buyback-strengthen-our-investment-case
- [2] https://www.marketscreener.com/news/linde-plc-bernstein-keeps-its-buy-rating-ce7c5fd3d98dfe2c