Energias de Portugal reported 2012 EPS of EUR 0.28 versus EUR 0.31 in 2011. The results were in line with the consensus estimate, but EUR 0.01 per share less than Morningstar’s full-year estimate. Poor results from operations in Brazil, where 2012 EBITDA was EUR 535 million–22% lower than in 2011–continued to have an impact on the 2012 fourth quarter.
Rate reductions in distribution and the delay in the commissioning of the Pecem coal-fired plant were the key drivers for the poor results from Brazil. Management reiterated flattish 2013 EBITDA guidance versus 2012 and our 2013 EPS estimate of EUR 0.28 is unchanged. We are reaffirming our narrow moat, stable moat trend and EUR 1.80 per share fair value estimate.
Although an agreement was reached with the Portuguese government in mid-2012 that is expected to eliminate most of the tariff deficit by 2020, the deficit increased by EUR 1.1 billion in 2012, including EUR 143 million in the fourth quarter, due in large part to poor hydro conditions.
The Iberian macro environment also remains a concern. Electricity demand is highly correlated with GDP growth and the Winter 2013 European Commission report projects GDP declining 1.9% in Portugal. Combined with higher energy prices driving conservation, analysts expect Portuguese electricity demand to decline over 2% in 2013 versus 2012.
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