ENGGY - Enagas: Still A No-Go Opportunity

2024-03-29 06:34:24 ET

Summary

• Enagás announced a 43% cut in dividend per share for 2024-2026.
• The company's capital allocation priorities and inconsistent free cash flow raise concerns about its dividend sustainability.
• Enagás is still expensive compared to peers, prompting a neutral rating status and a cautious view of the equity story.

In our Enagás' last assessment ( OTCPK:ENGGF , OTCPK:ENGGY ), we perfectly timed the market (Fig 1). Here at the Lab, we like EU-regulated pipeline companies, and last August 2023, our team moved the Spanish player to a neutral rating. In early January 2024, we downgraded the company to a sell recommendation with a target price of €12.96 per share. According to our analysis, these evidences were supported by the following:

1. Enagás' free cash flow could not meet the dividend per share payment;
2. There was no news on the GSP arbitration with a possibility of a higher net debt evolution;
3. The company's valuation was unjustified compared to EU-regulated peers.

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