Tuesday 18 June 2013

Analysis of Iberdrola

A Spanish energy company

Company: Iberdrola

Business: The biggest energy company in Spain. Their main focus is on renewable energy and they are strongly pushing wind and solar power production. They also make sure to keep the power nets as a division of the group

Active: Strong presence in Spain, much weaker in United Kingdom, the United States, Brazil and Mexico.

P/E: 9.2

The P/E for Iberdrola is in my eyes excellent with only 9.2 and a P/B of 0.8 makes it a very clear buy according to Graham! The earnings to sales are 8% which should be possible to improve especially if one looks back at Fortum that have over 20%. The book to debt with 0.5 is also acceptable. The growth I must admit has been surprisingly high with over 6% per year in the last five years. The earnings has however been standing still which might be due to it being difficult to increase the electricity prices when the Spanish industry as well as population are on their knees. Either way due to the excellent growth rate Lynch and Graham would say that a motivated P/E is around 20 so far, far from what it is today. They pay an excellent dividends of almost 8%! However it represents over 70% of their earnings so little left for investments. Hopefully they can soon improve their margins and then the high dividends can be pushed even higher.

Conclusion: I my opinion this is a clear buy. They pay good dividends they are making a good profit and they have grown excellently in the last five years. That they are pushing green energy is also something that will be of benefit more and more in the future. But and there is a but here... the dividends they pay are called flexible dividend payment (it can come in many words so be a bit careful). This means that you have to decide to either get money OR to get new stocks. Each shareholder deciding to take the stock will dilute the stocks of the company and each person taking the money will also "loose" part of the company. Just a little warning that you have to be prepared for this system.

No comments: