Barclays upgrades Redeia's value to Overweight

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Barclays upgrades Redeia's value to Overweight

Barclays doubled Redeia's value to Overweight from Underweight, noting that the current path of value destruction will reverse with the new regulatory review in 2025.

The company, based in Spain, faces a wall of investment in transport networks to make the Spanish government's green goals a reality, Barclays said.

The firm also raised the price target for the stock to €18 from €15.60.

The analysts said that Redeia has been laggard in the past year due to the headwind of high interest rates impacting the whole industry, mainly for those firms unable to pass through higher net financing costs to the consumer, while its allowed return is set in nominal terms, with no chance of updating for inflation at the regulatory asset base, or RAB level.

The prospect of a revenue cliff in 2024 could result in a 20% reduction in dividend per share, or DPS, to avoid dividend pay-out exceeding 100%.

The analyst thinks the current stock price already discounts these headwinds with the company currently trading at a discount to RAB.

The upgrade was due to the following reasons - the analysts think that raising the current inadequate allowed return will be a priority in the next regulatory review in 2025; the analysts no longer see the company requiring to reduce its DPS to its floor level of €0.8; and now expect a 5% cut in DPS in 2024 for a pay-out of 100%, and 2% year-over-year growth in 2025 and 2026; CPI inflation has slowed and is now muted in Spain, while prior cost inflation on big projects should advance RAB growth.