First and foremost, ESG – environmental, social and governance – has recently crystallized to be one of the most important factors for private and institutional investors. No investment bank or asset management institute publicly states to neglect ESG criteria in order to maximize their return on investment. Icons like Bill Gates sold all their investment stakes of Non-ESG conform companies and release books such as ‘How to avoid a climate disaster’ to convince others to accompany him on the way to reach the 1.5-degree Celsius Paris Agreement goal.
Enel S.p.A. (BIT:ENEL) the world’s largest energy utility with a revenue of 62,623 Million Euro in 2020 was among the first large corporates to invest in renewable power generation in 2008. With its heavy investment path of 190 Billion Euro until 2030 in the fields of renewable energies, I claim that Enel is perfectly aligned with what is important for the society and economy within the next decades.
Business Diversification
Impressively for an energy utility, Enel is active in thirty-two countries, in Europe, the Americas, Africa, Asia, and Oceania. It generates and distributes energy (electricity and gas) in B2B, B2G and B2C. Enel has 49 GW in renewable energies (Solar, Wind, Geothermal, Hydro and Hybrid) and 36 GW in thermal generation. This ratio is a promising sign for future profitability. Enel X uses digitalization, innovation and circular economy to offer B2B and B2G services for integrated solutions. As a distribution system operator, it manages 2.2 million kilometers of network with 44 million smart meters in 8 countries. Furthermore, it supplies 70 million homes with energy. Enel trades on the global energy and commodity market in more than 30 countries to reduce risk and secure energy supply. All figures are on the upper end in comparison to utilities in general which mostly act on the national or continental level. It is striking that Enel’s fields of business are highly digitalized which leads to great efficiencies, enormous cost-saving and revenue increase potential for additional software and services.
Regulation
The energy sector is regulated by the state in some countries. Other countries have already liberalized their energy market. Enel was privatized in 1999 when the Italian energy market was liberalized, and the Italian state is still its main shareholder with 23.6%. Most common is that fields of power generation, energy retail and additional services are liberalized but the transmission and distribution grid services are regulated, e.g., in Germany.
Competitors
I categorize the competitors into three groups: large, global utilities; transforming oil companies; and local, niche, not diversified, best in class generators, grid operators or electricity retailers. First, large, global acting utilities like Engie SA or Iberdrola S.A. which cover the same fields of business and have almost the same yearly revenue. Second, transforming oil companies like Royal Dutch Shell plc, Total SE or BP plc which change their core business step by step from oil and gas to renewable energy generation and supply. Third, local, niche and not diversified best in class generators, grid operators or electricity retailers which can together cause a loss of market share in key countries for Enel and therefore are a thread for its local revenues.
Competitive Advantage
Enel with its highly diversified business in products and services in different countries on various continents has a significant competitive advantage over smaller energy utilities because of the economy of scales on its platforms. In economic history, the bigger ones won over the smaller ones, the faster ones won over the slower ones, but now, the one with the better business model wins over the ones with the weaker business model. The energy platforms of Enel are definitely ahead in time in comparison to its direct competitors and grew more efficiently the more entities and customers were on the same platform which we can see in Enel’s remarkable historic double-digit net earnings growth. Moreover, Enel has no inherited oil burdens which makes it better prepared for future challenges than its transforming oil competitors.
2030 Outlook
Enel’s bold 2030 outlook is as promising as the annual 7% dividend per share growth at least until 2023. In total, Enel states a 190 Billion Euro investment until 2030 consisting of 150 Billion Euro in their ownership model (digital platforms as business enhancer increasing investment profitability) and 10 Billion Euro of their own money complemented by 30 Billion Euro third party money through joint ventures and partnerships in the stewardship model (catalyzes third-party investments or platforms as a business generator). Furthermore, it increases the renewable generation capacity from 49 GW (2,5% market share) to 145 GW (4% market share) and adds energy storage to operating plants to form hybrid power plants (20 TWh in 2030). Green hydrogen is crucial for hard-to-decarbonize sectors and Enel will increase its production capacity to 2 GW in 2030. By the same token, there will be a reduction of CO2 by 80% in comparison to 2017 which is in line with the 1,5-degree Celsius goal and end-users will rise from 74 million to 90 million, all equipped with smart meters (60% today). Last but not least, Enel will install 4 million electric vehicle charging points until 2030. In all segments, Enel has a highly promising future ahead, will be a very active player in the renewable energies market and does not neglect its profitability in a way, that information technology companies do.
Key Figures
Enel has a market cap of 88.01 Billion Euro and an enterprise value of 154.95 Billion Euro by mid of April 2021 which are best in class. Even more promising is that over the past decade, the worldwide annual growth of renewable energy consumption was 13.7% and it is not forecasted to stop growing.
Enel’s 2020 revenue is 62,623 Million Euro (highest in class) with a net income of 2,610 Million Euro (solid 4.17% profit margin). In 2020, the total assets are 163,453 Million Euro, and total liabilities are 121,096 Million Euro (debt to asset ratio of 36.50%). The operating cash flow is 11,508 Million Euro, the investing cash flow is -10,117 Million Euro and the financing cash flow is -4,469 Million Euro which are healthy figures for a heavily investing energy company.
Most importantly for the return-oriented investor is the following quantitative growth in earnings.
| Earnings growth | 2020 E | 2021 | 2022 | 2023 | CAGR 2020-23 |
| Ordinary EBITDA (€bn) | ~18 | 18.7-19.3 | 19.7-20.3 | 20.7-21.3 | +5%/+6% |
| Net ordinary income (€bn) | 5.0-5.2 | 5.4-5.6 | 5.9-6.1 | 6.5-6.7 | +8%/+10% |
| Guaranteed DPS (€/share) | 0.35 | 0.38 | 0.40 | 0.43 | ~7% |
Since the utility business and investment in large-scale renewable power plants is highly predictable, a dividend of 0.35 Euro per share in 2020 will annually grow by 7% to 0.43 Euro per share in 2023. Thus, the future dividend ratio is around 4.5% per year which makes it highly attractive for value-oriented, dividend seeking investors.
The ROE of 8.11% is on the upper end for utilities. Due to the high capital requirements for renewable energy facilities, the ROE is at the lower end in comparison to the S&P 500 where different business models with fewer debt requirements cause higher ROEs.
Enel’s EPS is 0.25 and its P/E ratio is 34.05. The P/E ratio of the renewable energy sector is 151 and the P/E ratio of the power sector is 32.38. Therefore, Enel’s 34.05 is a highly promising ratio since it is solely investing in renewable energies and adjoining sectors in the future.
Summary
To put it all in a nutshell, the world’s largest energy utility, Enel, is perfectly aligned with the ESG criteria development in the financial sector, serves its investors with high dividends each year as previously known from the oil sector and forecasts double-digit growth in net ordinary income for the subsequent years.
(I do not own any stake in Enel SpA and its country subsidiaries by 22/04/2021)
