Tariff Review And Grid Upgrades Will Drive Performance Amid Debt

Key Takeaways

• Secured regulatory certainty and planned tariff hikes will boost revenue stability, margins, and reduce future financial risks.
  
• Population growth and smart grid investments drive long-term demand, operational efficiency, and open opportunities in ancillary business segments.
  
• Political and regulatory uncertainty, financial strain, and inflationary pressures threaten long-term profitability, operational investment, and growth prospects despite recent tariff adjustments.

Catalysts

Engages in the distribution and sale of electricity in Argentina.

• The company has just secured a 5-year tariff review, providing clear visibility and scheduled incremental tariff increases (including monthly inflation-linked adjustments), which should materially improve revenue per customer and reduce regulatory uncertainty-directly supporting stronger and more predictable top-line growth and margins.
  
• Robust population growth and urbanization in and around Buenos Aires are steadily increasing Edenor's residential and commercial customer base, providing natural tailwinds for long-term electricity demand and helping to underpin stable or rising sales volumes and revenues.
  
• Strategic capital investments in smart grid and digital monitoring systems are driving operational efficiencies, reduced energy losses, and improved service quality, which should directly expand EBITDA margins and strengthen net earnings over time by minimizing technical and commercial losses.
  
• Improving capital structure through substantial debt repayment and upcoming regularization and restructuring of liabilities with CAMMESA will lower financial expenses and reduce refinancing risk, freeing up cash flow for future growth investments and enhancing net income.
  
• Ongoing regulatory and governmental support for grid modernization initiatives, along with Edenor's exploration of diversification into value-added and non-regulated business segments (like distributed energy, storage, and critical minerals via Edenorte), creates new long-term ancillary revenue opportunities and supports free cash flow and earnings growth.

Empresa Distribuidora y Comercializadora Norte Sociedad Anónima Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Empresa Distribuidora y Comercializadora Norte Sociedad Anónima's revenue will grow by 27.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.6% today to 1.0% in 3 years time.
• Analysts expect earnings to reach ARS 47.5 billion (and earnings per share of ARS 0.87) by about July 2028, down from ARS 194.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 100.2x on those 2028 earnings, up from 7.3x today. This future PE is greater than the current PE for the US Electric Utilities industry at 7.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 24.83%, as per the Simply Wall St company report.

Empresa Distribuidora y Comercializadora Norte Sociedad Anónima Future Earnings Per Share Growth

Risks

• Persistent dependence on government-regulated tariffs and the recently approved gradual tariff adjustments may expose EDENOR to continued political and regulatory risks-especially as future government initiatives to control inflation could prevent full recovery of operating costs, putting pressure on revenue growth and long-term net margins.
  
• High levels of legacy debt with CAMMESA (over ARS 250 billion pending regularization) and the need for multi-year installment plans highlight ongoing financial strain; uncertainty around final terms and interest rates, as well as the requirement for future payments, may restrict cash flow available for critical network investments, dampening future earnings and operational efficiency.
  
• The inability to access or publicize key regulatory assumptions (such as Regulated Asset Base and allowed OpEx) after the recent tariff review adds uncertainty about the long-term returns and capital recovery, undermining forward visibility on earnings, cost structures, and the sustainability of dividends.
  
• Modest growth in core electricity sales volumes (down 0.6% year-on-year in Q1 2025) coupled with increasing energy efficiency and distributed generation technologies may cap long-term volumetric growth in demand, limiting future revenue expansion even if tariffs increase.
  
• Persistent inflation and currency volatility in Argentina could continue to erode the real value of regulated tariffs and impact the effectiveness of periodic tariff adjustments, resulting in lower realized margins and profit volatility, and threatening the company's ability to maintain stable earnings and invest in modernization.

Valuation

• The analysts have a consensus price target of ARS2800.0 for Empresa Distribuidora y Comercializadora Norte Sociedad Anónima based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ARS4662.5 billion, earnings will come to ARS47.5 billion, and it would be trading on a PE ratio of 100.2x, assuming you use a discount rate of 24.8%.
• Given the current share price of ARS1620.0, the analyst price target of ARS2800.0 is 42.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.