Endesa (360) | Reduce | From discount to premium?

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Endesa (360) | Reduce | From discount to premium?

Endesa Reduce | Target Price: EUR31.00

A closer look at integrated Generation & Supply margins

Endesa’s integrated Generation & Supply margin (including Conventional Generation,

Renewable Generation, and Retail) has continued to expand since the peak of the energy crisis,

and, according to management guidance, could increase further over the 2026-28 period.

We believe the improvement has been driven by three factors: higher realised power prices,

lower sourcing costs as renewable generation has grown, and a steady expansion of Retail

supply margins.

A key enabler has been the government’s signalling of a politically acceptable generation

price through the 2022 revenue cap mechanism, which effectively established a reference

level of around EUR67/MWh for inframarginal generation revenues.

Meanwhile, other earnings drivers such as gas margins (which are not included in the

integrated electricity margin metric) currently appear to be at historically high levels. Our

central scenario assumes modest further improvement in electricity margins, partly offset

by a normalisation of gas profitability.

Unit integrated electricity margin: Outstanding long-term performance

Endesa provides unusually detailed disclosure on its Generation & Supply activities. Since 2022,

the company has reported three operating segments:

n Conventional Generation & Other.

n Renewables Generation (including Hydro).

n Retail.

By aggregating these businesses and excluding Gas, Islands compensation, and the PVCP

(regulated tariff) margin, then dividing by liberalised electricity sales, we derive the integrated

liberalised Generation & Supply margin, one of the most relevant indicators for assessing the

profitability of Endesa’s integrated model: