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.