One of Citigroup’s top investment analyst has marked down EDP’s share price, saying that new regulation leaves the company’s financial structure "unbalanced" and that high debt and a generous dividend policy is not helping.For Citigroup, recent regulatory changes have meant that part of the EDP group is not able to sustain debt costs, nor the company’s "generous dividend policy" under Chief Executive, António Mexia.
The bank has cut EDP's target price and reiterates its "sell" recommendation.
"After very adverse regulatory intervention, we consider that the EDP structure is unbalanced, since part of the group, excluding EDP Renováveis and Energias do Brasil, no longer autonomously supports the vast majority of the debt ... and the generous policy of dividends," writes Antonella Bianchessi, the Citigroup analyst, in a note to investors that has been quoted extensively by Reuters.
In 2016, EDP's net debt was €15.9 billion and a generally negative outlook has led Citigroup to cut EDP's target share price to €2.30. Shares currently are trading at €2.799.
Bianchessi does not limit himself to cutting the share valuation as also he foresees a reduction in the dividend when the 2017 accounts are published, guessing at 14 cents per share as opposed to 19 cents paid out in 2016.
"This measure alone will not be enough to rebalance the group's financial structure and, in our view, further measures will be necessary," says Bianchessi. "A merger with EDP Renováveis or the sale of additional assets" may help restore the company's financial structure, he points out.
Since the beginning of the year, several banks have cut investment in EDP. In January, CaixaBI changed its valuation and financial estimates due to, "the latest data released, changes in the asset portfolio and the negative impact of the new regulation."
BPI has maintained its "neutral" recommendation as its analysts did not anticipate further regulatory changes but did say that some ‘pending issues’ should continue to generate disruption.
