EDP stock trades steadily as renewable growth offsets lower Q1 profit

EDP - Energias de Portugal S.A. (ISIN PTEDP0AM0009) sits at the center of Europe’s energy transition, and EDP stock currently reflects a balance between near-term earnings pressure and structural growth in renewables. According to data from Euronext as of 16 April 2024, shares of EDP traded around EUR 3.60 on the Lisbon exchange, implying a market capitalization close to EUR 13 billion at that time. For investors, the combination of lower early-2024 profit, rising renewable capacity, and stable regulated networks frames the current valuation narrative.

Q1 2024 profit down 20.2 percent

The latest detailed snapshot of EDP’s fundamentals comes from the company’s Q1 2024 trading update, which shows that group net profit declined compared with the prior year period. According to EDP’s Q1 2024 results materials, net profit attributable to EDP for Q1 2024 came in at EUR 142 million, down 20.2% from EUR 178 million in Q1 2023. The company attributes this decline mainly to lower hydro production in Iberia, normalization of wholesale prices versus an unusually strong prior-year environment, and a less favorable contribution from non-recurring items.

Operationally, EDP’s earnings mix remains diversified across generation, networks, and client solutions. In the same Q1 2024 release, EDP reports that EBITDA reached EUR 1.11 billion in the quarter, compared with EUR 1.15 billion in Q1 2023, a decrease of around 3.5%. This modest EBITDA contraction contrasts with the sharper drop in net profit, highlighting that below-EBITDA items such as financial results and non-recurring effects had a notable impact on the bottom line. The regulated networks businesses in Portugal and Spain contributed resilient earnings, partially offsetting earnings volatility in merchant generation.

Renewable capacity expands 11 percent year on year

Despite the softer profit in early 2024, EDP continues to expand its renewable generation footprint, primarily through its subsidiary EDP Renováveis. According to the Q1 2024 operational statistics in the same EDP disclosure, EDP’s gross renewable installed capacity (including wind, solar, and hydro) reached 30.9 GW as of 31 March 2024, up 11% from approximately 27.8 GW a year earlier. The bulk of the growth came from wind and solar projects in Europe and North America, with around 1.8 GW of new capacity brought on line over the previous twelve months.

Within that total, EDP Renováveis, which consolidates most of the wind and solar portfolio, reported gross installed capacity of about 16.6 GW at the end of Q1 2024 compared with 15.0 GW a year earlier. That increase of roughly 1.6 GW corresponds to growth of around 10.7% year on year, underlining the company’s execution of its renewables investment plan. As presented in EDP’s strategic materials, the company targets adding thousands of megawatts of renewables through 2026 to support decarbonization of its generation mix and to capture supportive regulatory frameworks in multiple geographies.

The expansion in renewables also feeds through to production metrics. EDP states in its Q1 2024 operational report that renewable generation output reached approximately 21.8 TWh in the first quarter of 2024, down from about 23.3 TWh in Q1 2023. The decline of roughly 6.5% year on year is largely driven by weaker hydro conditions in Iberia. Wind and solar output, by contrast, grew at mid-single-digit rates, cushioned by the incremental installed capacity. This divergence between hydro and other renewables explains why installed capacity growth did not fully translate into higher total renewables generation in the quarter.

Free cash flow supports investment in networks

Beyond earnings and capacity, EDP’s cash generation remains a central element in assessing EDP stock. According to the consolidated annual figures in EDP’s full-year 2023 report, the group generated operating cash flow before working capital of EUR 4.1 billion in 2023, compared with EUR 3.8 billion in 2022. This increase of roughly 7.9% underscores the underlying strength of the business despite volatility in wholesale prices and hydro conditions. The improvement stems from higher contribution of regulated networks and renewables EBITDA, partially offset by normalization of extraordinary items linked to the energy crisis period.

EDP’s capital expenditure reflects its strategic tilt toward renewables and grid modernization. In the same 2023 report, the company states that net investments reached approximately EUR 5.0 billion in 2023, of which around 80% was allocated to renewable capacity expansion and electricity networks. Compared with 2022 net investments of roughly EUR 4.4 billion, this represents an increase of about 13.6%. The allocation shows that EDP continues to prioritize long-lived, regulated or quasi-regulated assets that support decarbonization and electrification trends, rather than short-term merchant exposures.

Even with this elevated investment level, EDP maintains a manageable leverage profile. The group’s net debt, including hybrid instruments, stood at EUR 15.5 billion at the end of 2023, up from EUR 14.3 billion a year earlier, an increase of about 8.4%. When compared with EBITDA, EDP reports a net debt to EBITDA ratio around 3.8x in 2023, slightly higher than in 2022 but within the range the company considers compatible with a solid investment-grade credit profile. This balance between investment acceleration and cautious leverage management is a key consideration for long-term holders of EDP stock.

Dividend yield underpins EDP stock valuation

Income remains a central component of EDP’s equity story. According to EDP’s 2023 shareholder remuneration update, the company proposed a dividend per share of EUR 0.20 for the 2023 financial year, the same level as for 2022. At a share price around EUR 3.60 as of mid-April 2024, this dividend corresponds to a cash yield of approximately 5.6%. For investors, a yield in the mid-single-digit range can help stabilize the share price during periods when growth metrics such as net profit or renewable output are temporarily under pressure.

The stability in the nominal dividend contrasts with the variability in earnings driven by hydro and wholesale price swings. EDP has articulated a shareholder remuneration policy that aims to distribute between 65% and 75% of ordinary net profit in dividends, subject to leverage considerations and investment needs. In 2023, the dividend of EUR 0.20 per share represented a payout ratio within this targeted range based on reported net profit, according to the company’s annual financial statements. Maintaining a predictable dividend policy is one way EDP seeks to support EDP stock’s appeal among income-oriented European utilities investors.

At the same time, the company is cautious not to overextend payouts at the expense of investment. EDP’s capital allocation framework prioritizes first the funding of its renewable growth plan and network modernization, then the preservation of credit metrics, and finally the maintenance of a competitive dividend. This hierarchy becomes particularly relevant in years such as 2024, when net profit is pressured by hydro conditions and price normalization. For investors, the interaction between earnings volatility and the dividend policy is a central theme.

EDP Renewables drives growth with wind and solar

A representative business line within EDP’s portfolio is EDP Renováveis, the group’s listed renewables subsidiary that focuses on wind and solar. In its 2023 annual disclosure, EDP Renováveis reported gross installed capacity of around 16.6 GW, up from 15.0 GW in 2022. The increase of 1.6 GW, or 10.7%, reflects new wind and solar farms in Europe, North America, and Brazil. Revenue from EDP Renováveis reached approximately EUR 2.5 billion in 2023, compared with EUR 2.3 billion in 2022, a year-on-year increase of about 8.7% fueled by higher production and capacity additions despite a normalization of electricity prices.

EDP Renováveis contributes materially to the group’s decarbonization targets. EDP has set objectives to be coal free and largely carbon neutral in its electricity generation by the end of this decade. The expansion of wind and solar within EDP Renováveis, combined with repowering existing assets and enhancing hybridization with storage, is central to these goals. For investors analyzing EDP stock, performance and execution in EDP Renováveis often act as a leading indicator of the group’s long-term growth trajectory.

EDP stock on Euronext Lisbon

EDP stock is primarily listed on Euronext Lisbon under the ticker EDP. As of 16 April 2024, quote data from Euronext indicates that the shares traded around EUR 3.60 during regular trading, within a 52-week range broadly between EUR 3.00 and EUR 4.50. This price implies a price-to-earnings multiple in the low-teens based on the company’s 2023 reported net profit, placing EDP in the mid-range of European integrated utilities valuations. For market participants, the current price region reflects both the structural value of the regulated and renewable asset base and the cyclical nature of hydro and wholesale price dynamics.