EU Decarbonization Will Boost Renewable Hydrogen Amid Uncertainties

Key Takeaways

• Accelerated policy and funding shifts, alongside surging renewable gas demand and international growth, could drive rapid revenue and EBITDA outperformance.
  
• Balance sheet improvements, debt reductions, and regulatory stability position Enagás for stronger margins, resilient earnings, and diversified revenue streams.
  
• Transition to renewables, stricter regulations, and execution risks threaten Enagás's gas revenues, project returns, financing access, and long-term dividend sustainability.

Catalysts

Engages in the transmission, storage, and regasification of natural gas.

• Analyst consensus anticipates a moderate ramp-up in green hydrogen infrastructure revenues by 2030, yet strong recent policy, regulatory and funding acceleration in both Spain and Europe could actually lead to a much faster adoption, higher utilization of Enagás's hydrogen backbone, and an earlier, step-change uplift in revenues by as soon as 2028.
  
• While analysts broadly expect margin gains from efficiency and cost controls capped at 1.5% opex growth, Enagás's exceptional balance sheet improvement, deep reductions in net debt, and further asset rotation suggest net margins could materially outperform consensus as leverage and funding costs structurally decline-amplified by stable regulated returns and new, higher-return hydrogen assets.
  
• Massive, persistent growth in European gas demand for security and system backup (as seen during Spain's April 2025 electricity outage) is underappreciated, positioning Enagás for above-consensus throughput volumes and higher regulated returns on core natural gas infrastructure-directly benefiting overall EBITDA and recurring earnings.
  
• The full integration of Enagás's international affiliates and partnerships (such as the growing TAP and German hydrogen corridors) may drive faster-than-expected international EBITDA growth, while unlocking new regulatory frameworks and diversified revenue streams insulated from Spanish regulatory risk.
  
• Enagás is likely to benefit from a powerful multi-year demand surge for renewable gases and storage-spanning LNG, biomethane, and green hydrogen-with network and storage asset utilization peaking as supply chains decarbonize, leading to higher-than-forecasted top-line growth and long-term earnings resilience.

Enagás Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Enagás compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Enagás's revenue will decrease by 0.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 14.6% today to 30.1% in 3 years time.
• The bullish analysts expect earnings to reach €282.2 million (and earnings per share of €1.07) by about September 2028, up from €134.6 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 bullish analyst cohort, the company would need to trade at a PE ratio of 21.1x on those 2028 earnings, down from 25.5x today. This future PE is greater than the current PE for the GB Gas Utilities industry at 19.0x.
• Analysts expect the number of shares outstanding to decline by 0.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.49%, as per the Simply Wall St company report.

Enagás Future Earnings Per Share Growth

Risks

• Secular shifts toward renewables and electrification, coupled with aggressive decarbonization policies in Europe and Spain, threaten to diminish long-term demand for natural gas, putting downward pressure on infrastructure utilization and ultimately shrinking Enagás's core pipeline revenues.
  
• Intensifying ESG mandates and growing investor preference for low-carbon investments may incrementally restrict Enagás's access to affordable capital, potentially raising financing costs and reducing net margin over time as the company pursues major new projects.
  
• Delays, ambiguity, or overly conservative returns in the Spanish and European regulatory frameworks-especially around remuneration rates for gas networks and future hydrogen infrastructure-risk capping or compressing allowed rates of return, limiting top line revenue growth and constraining earnings.
  
• Execution risks and potential timeline slippage in the hydrogen backbone network and related projects, as raised in both the Q&A and management's own admissions, increase the likelihood of delayed capital deployment, uncertain offtake, and under-realization of projected pipeline earnings, thereby negatively impacting recurring profit expectations.
  
• The company's persistent focus on the Iberian market, coupled with aging legacy infrastructure requiring significant maintenance, exposes it both to single-region regulatory and demand shocks and to escalating capex needs, which could erode future free cash flow and put sustainable dividends at risk.

Valuation

• The assumed bullish price target for Enagás is €18.75, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Enagás's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €18.75, and the most bearish reporting a price target of just €12.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €937.4 million, earnings will come to €282.2 million, and it would be trading on a PE ratio of 21.1x, assuming you use a discount rate of 7.5%.
• Given the current share price of €13.2, the bullish analyst price target of €18.75 is 29.6% higher.
• 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.