Rising Rates And US-China Tensions Will Erode Margins

Key Takeaways

• Rising financing costs, reduced subsidies, and slowing project growth are putting sustained pressure on margins, revenue expansion, and long-term profitability.
  
• Geopolitical instability and ongoing capital expenditure challenges create unpredictability in revenue diversification and risk further weakening the company's financial position.
  
• Acciona is well-positioned for long-term growth and resilience due to diversified operations, strong renewable demand, asset optimization, and improving profitability across its subsidiaries.

Catalysts

Engages in the energy, infrastructure, and other businesses in Spain and internationally.

• Rising global interest rates and tighter credit conditions are likely to increase financing costs for Acciona's capital-intensive renewable and infrastructure projects, significantly eroding net margins and putting pressure on both profitability and the company's ability to sustain long-term growth.
  
• Increasing geopolitical instability, including trade tensions and import tariffs (especially between the US and China), is expected to cause delays or derailment in key international projects, reducing Acciona's ability to diversify revenue streams and making future top-line growth far less predictable.
  
• A potential reduction in government subsidies for renewables, combined with impending phaseouts of tax credits in critical markets like the US and growing fiscal pressures in Europe, is likely to make a substantial portion of new projects economically unviable, constraining revenue growth and undermining Acciona's project pipeline beyond 2027.
  
• The company is now entering a prolonged period of lower organic new-build growth, with capacity additions dropping from historical highs of nearly 2 gigawatts annually to just 600 megawatts per year; this deceleration is likely to result in stagnant revenues and limits further economies of scale, especially amid heightened global competition.
  
• Persistently high capital expenditures required to maintain position in renewables and infrastructure, exacerbated by ramp-up delays, technical issues, and asset rotation reliance, will continue to strain Acciona's balance sheet, risking increased leverage ratios, lower net margins, and weaker future earnings even as asset disposals become less accretive over time.

Acciona Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Acciona compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Acciona's revenue will decrease by 4.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 3.8% today to 2.0% in 3 years time.
• The bearish analysts expect earnings to reach €382.3 million (and earnings per share of €4.79) by about August 2028, down from €832.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, up from 11.3x today. This future PE is greater than the current PE for the GB Electric Utilities industry at 14.9x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.34%, as per the Simply Wall St company report.

Acciona Future Earnings Per Share Growth

Risks

• Strong and growing global demand for renewable energy, underpinned by irreversible momentum in climate action, government emission reduction mandates, and electrification trends, is likely to support revenue growth for Acciona over the long term.
  
• Record infrastructure and concessions backlog, with diversification across geographies (Europe, Australia, Latin America, U.S., etc.) and sectors (energy, water, construction) provides long-term visibility and stability of cash flows and future earnings.
  
• Successful execution of the asset rotation strategy, with around €3 billion in proceeds and capital gains being realized at valuations well above the share price, is strengthening the balance sheet and could support net margins and reduce leverage, underpinning investor confidence.
  
• Improving margins and profitability in key subsidiaries such as Nordex, which reported a 59% increase in EBITDA and substantial growth in order intake and backlog, strengthens group earnings and provides a resilient stream of operating profit.
  
• The company's flexibility in CapEx management, strategic project selection, and strong performance in asset management (Bestinver's AUM growth) as well as global leadership in complex projects, position Acciona to benefit from global infrastructure investment cycles and sustain or grow its earnings and margins over time.

Valuation

• The assumed bearish price target for Acciona is €95.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Acciona's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €202.0, and the most bearish reporting a price target of just €95.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €19.2 billion, earnings will come to €382.3 million, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of €171.8, the bearish analyst price target of €95.0 is 80.8% lower.
  
• 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.