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Iberdrola SA IBE

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We See No Hidden Offshore Wind Value in Iberdrola as It Mulls a Spin-Off

Tancrede Fulop, CFA Senior Equity Analyst

Analyst Note

| Tancrede Fulop, CFA |

In March 2021, Iberdrola held an offshore wind webinar where it emphasized the undervaluation of its offshore wind business by using consensus' valuation of Orsted as a benchmark. At the first-half results on July 21, CEO Ignacio S. Galan underscored again the hidden value of the business and admitted the group was considering spinning it off. The rationale would be to unlock value and raise equity to fund development of the 25-gigawatt pipeline. Unlike what Iberdrola claims, we think its offshore wind activity is correctly valued at the current share price and disagree with assumptions used by the firm. We value Iberdrola's offshore wind unit at EUR 13.24 billion, 25% below the group's EUR 17.70 billion. Our downside has two sources. First, we use a net present value for every project instead of Iberdrola's overly simplistic approach based on multiples from consensus' valuation of Orsted. Second, we expect Iberdrola to reach the bottom end of its 2030 offshore wind capacity target. Last, we estimate the new entity wouldn't warrant a moat and would have to carry out a EUR 1.00 billion rights issue. 

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Company Profile

Business Description

Iberdrola is one of the largest utilities in the world with electric utility operations in nearly 40 countries. The company has a 53-gigawatt portfolio of hydro, wind, natural gas, coal and nuclear power plants. It is the largest owner of wind farms in the world, representing one third of its portfolio. Although the company has recently developed or acquired distribution and power generation assets in other geographic areas, Spain is still home to around 50% of its power generation capacity. Iberdrola also owns and operates electricity and distribution networks in Spain, the U.K., Brazil, and the U.S.

Plaza Euskadi Number 5, Biscay
Bilbao, 48009, Spain
T +34 944151411
Sector Utilities
Industry Utilities - Diversified
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 38,006