Endesa S.A. Earnings Call: Grid Spending and Returns

Endesa S.A. Unsponsored ADR ((ELEZY)) has held its Q4 earnings call. Read on for the main highlights of the call.

Endesa S.A.’s latest earnings call struck a broadly upbeat tone, with management showcasing a clear financial outperformance in 2025 and laying out a growth‑oriented 2026–2028 plan anchored in grid investment and stable regulated earnings. Yet they repeatedly underscored execution, regulatory and market risks, meaning investors are being paid for growth but must watch delivery closely.

Strong 2025 Financial Outperformance

Endesa reported around EUR 5.8 billion of EBITDA for 2025, roughly 9% higher year on year, underscoring the resilience of its integrated model in a volatile market. Net ordinary income surged to EUR 2.3 billion, an 18% increase and about 21% above guidance, lifting the EBITDA‑to‑net income conversion ratio to a solid 41%.

Robust Cash Generation and Conversion

Funds from operations reached EUR 4.1 billion in 2025, translating into a healthy cash conversion ratio of about 70% versus EBITDA. Management aims to lift this to roughly 78% over 2026–2028, signaling more disciplined capital deployment and improved working‑capital management supporting future payouts.

Shareholder Returns Upgraded

The board proposed a 2025 dividend of EUR 1.58 per share, 20% higher year on year and implying a yield above 5%, while also progressing on a EUR 2 billion share buyback that is about 30% complete. Endesa refreshed its capital‑return framework with a minimum 70% payout of net ordinary income and a targeted dividend per share growth of around 4% between 2026 and 2028.

Aggressive Capital Deployment Focused on Grids

For 2026–2028, Endesa plans EUR 10.6 billion of investments, about 10% higher than the previous plan and with more than half earmarked for networks. Grid capex is slated to jump by around 40% to EUR 5.5 billion, with roughly 80% of that spending feeding into regulated asset base growth and driving an expected 13% RAB increase by 2028.

Low‑Risk, Visible Earnings Profile

Management expects about 85% of EBITDA to come from regulated or contracted activities over the plan horizon, offering investors a relatively predictable earnings mix. EBITDA is guided to grow around 4% annually to EUR 6.2–6.5 billion by 2028, with net ordinary income and EPS each rising at roughly 4–5% per year.

Renewables and Storage Progress

In 2025, Endesa added roughly 1.2 GW of new capacity, taking emission‑free sources to around 80% of installed capacity and reinforcing its decarbonisation story. The company plans about 1.9 GW of additional renewables, mainly wind and batteries, by 2028, pursuing selective projects like the 600 MW Pego hybrid site that target returns some 300 basis points above the cost of capital.

Improving Operational KPIs and Investment Execution

Total investments in 2025 reached EUR 3.2 billion, more than 50% above the prior year, with roughly 77% directed toward grids and renewables, signalling an acceleration in execution. Operational metrics are improving too, with interruption times down, technical losses kept broadly stable and the average cost of gross debt reduced to about 3.3%.

Severe Grid Saturation and Connection Constraints

Management highlighted Spanish network saturation as a key bottleneck, with the distribution grid around 88% full overall and Endesa’s nodes at roughly 94%. Only about 18% of 26 GW of connection requests were approved, a gap that could slow electrification and undermine demand growth assumptions if not addressed.

Leverage and Net Debt Increase

Net financial debt climbed by roughly EUR 0.8 billion in 2025 to EUR 10.1 billion, reflecting high capex and shareholder distributions. Under the new plan, net debt is expected to rise by another EUR 4 billion to EUR 14–15 billion by 2028, pushing net debt to EBITDA from around 1.8 times to about 2.3 times as the balance sheet shoulders growth and buybacks.

Customer Market Challenges and High Churn

The liberalized customer base remains under pressure, with churn running in the 25–30% range and particularly high in segments vulnerable to fraud and aggressive competition. Endesa is willing to accept short‑term volume losses as it shifts toward higher‑value clients and integrates MasOrange to improve loyalty, but this strategy is execution‑sensitive.

Renewables and Hydro Variability, Curtailments

Renewables EBITDA dipped slightly in 2025 as lower wind and solar volumes, weaker prices and curtailments offset capacity growth, revealing the sector’s operational volatility. Hydro performed strongly in 2025, yet management cautioned that output is inherently lumpy and expected to normalise, which could weigh on generation results year to year.

Ancillary Services Costs and Market Volatility

Power markets remained highly volatile, with intraday prices swinging from around EUR 145 per MWh in winter to zero or below in spring, complicating hedging and dispatch decisions. Post‑blackout measures imposed by the system operator sharply raised ancillary service costs, squeezing margins even as Endesa kept its free power unit margin decline to about 5%, at EUR 52 per MWh.

Gas Business Normalization and Contract Expiries

The gas business enjoyed a one‑off boost in 2025, with margins improving to roughly EUR 9 per MWh on the back of earlier hedges and favourable contracts. Management warned that expiring supply deals with Qatar and Nigeria will cut gas sales by about a third and, together with margin normalization, could create an EBITDA headwind of roughly EUR 400 million versus 2025.

Plan Contingent on Regulatory Actions and Assumptions

A key caveat around the investment and earnings roadmap is its reliance on regulatory decisions, including changes needed to raise investment limits and fully recognise capex in the RAB. The plan also embeds assumptions on asset lifetimes, such as nuclear plant extensions, and any shortfall versus these expectations could affect returns and growth timing.

Investment Timing and RAB Recognition Lag

Endesa cautioned that not all investment will immediately translate into earnings, with about EUR 1 billion of capex by 2028 still in progress and not yet remunerated in the RAB. This creates a timing lag in which the benefits of today’s spending will partly appear beyond the plan horizon, making near‑term returns sensitive to both execution pace and regulatory recognition.

Forward‑Looking Guidance and Outlook

Looking ahead, Endesa plans EUR 10.6 billion of capex in 2026–2028, of which about EUR 5.5 billion will go to grids and EUR 3.0 billion to renewables, supporting a 13% RAB uplift by 2028 and roughly EUR 15 billion of RAB by 2030. Financially, the group targets EBITDA of EUR 6.2–6.5 billion, net ordinary income of EUR 2.5–2.6 billion, FFO of around EUR 14 billion and improving cash conversion, while completing its EUR 2 billion buyback and sustaining a minimum 70% payout.

Endesa’s earnings call painted the picture of a utility leaning hard into regulated infrastructure and selective renewables to deliver moderate, visible growth alongside attractive shareholder returns. The combination of strong 2025 results and upgraded capital allocation is compelling, but investors will need to track regulatory decisions, grid constraints and gas normalisation to judge whether the plan’s promised value fully materialises.