On Tuesday, Citi initiated coverage on Enel (BIT:ENEI) Chile (NYSE:ENIC), giving the stock a Buy rating. The firm set a 12-month price target of ChP 62 per share, citing several reasons for the positive outlook. Among the factors contributing to this assessment are the high levels of hydro generation due to stored energy in dams, which is expected to ease pressure on spot prices and reduce spot purchase costs. This change is anticipated to improve the company's EBITDA margin from 27% in 2024 to 28% in 2025.
Despite the conclusion of profitable regulated Power Purchase Agreements (PPAs), Citi points out that improvements in the energy pro rata in the system will partially counterbalance this effect. Moreover, the average energy price of the remaining regulated PPAs is projected to fall only 17% to $80/MWh, which is still above current spot prices.
Citi also notes that Enel Chile's net financial debt to EBITDA ratio (NFD/EBITDA) is expected to lower following the factoring of PEC receivables and stable cash generation. This improvement is believed to provide Enel Chile with the financial flexibility to invest in future renewable projects.
Furthermore, the firm highlighted that Enel Chile's 12-month forward EV/EBITDA is valued at 5.5 times, representing a 9% discount compared to its 10-year historical average. Additionally, with an 8.5% dividend yield, Enel Chile stands out as an attractive option among its industry peers. The combination of these financial metrics and operational strengths forms the basis of the Buy recommendation for Enel Chile's stock.
In other recent news, Enel Chile reported a substantial increase in its financial performance for the first nine months of 2024. The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) surged 46% to $1 billion, while net income saw a robust 62% increase to $446 million. The financial growth was largely attributed to favorable hydrological conditions that led to a 20% boost in hydro generation and a strong generation mix.
Enel Chile also announced the near completion of the Los Condores hydropower plant, which is expected to contribute 150-200 gigawatt-hours annually. The company executed a $630 million factoring deal related to regulatory receivables and is currently engaged in discussions about electricity subsidies and potential green tax increases. A new strategic plan focusing on renewable energy will be unveiled soon.
InvestingPro Insights
Recent data from InvestingPro reinforces Citi's bullish stance on Enel Chile (NYSE:ENIC). The company's P/E ratio of 4.59 and Price to Book ratio of 0.74 suggest that the stock may be undervalued, aligning with Citi's observation of a discount compared to historical averages.
InvestingPro Tips highlight ENIC's strong financial position, noting that "liquid assets exceed short term obligations" and "cash flows can sufficiently cover interest payments." These factors support Citi's view on the company's financial flexibility for future investments.
The impressive dividend yield of 13.73% reported by InvestingPro surpasses Citi's mentioned 8.5%, making ENIC even more attractive for income-focused investors. Additionally, InvestingPro points out that ENIC has "maintained dividend payments for 9 consecutive years," underlining the company's commitment to shareholder returns.
For investors seeking more comprehensive analysis, InvestingPro offers 8 additional tips for ENIC, providing a deeper understanding of the company's financial health and market position.
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