BofA upgrades Enagas to neutral after shares underperform sector and peers By Investing.com

Investing.com — Analysts at BofA Securities in a note dated Wednesday updated Enagas SA (OTC:) (BME:)., revising its rating to ‘neutral’ from ‘underperform’. That revision came after the stock outperformed Spanish peer Red Eléctrica and the sector by 900 to 1,250 basis points in the third quarter.

Analysts point to several factors that justified this upgrade, notably the recent €1.1 billion sale of Tallgrass Energy, which was seen as strengthening Enagas’ balance sheet and improving its revenue visibility.

While the disposal supports Enagas’ financial position, the upgrade was prudent. BofA noted persistent risks, such as ongoing arbitration over the Gasoducto Sur Peruano project, which remains a significant surplus.

Uncertainty surrounding the company’s ambitious plans for Green Hydrogen infrastructure is also tempering enthusiasm, as Enagas’ ability to successfully pivot to this emerging market remains uncertain.

The Green H2 sector is still in its infancy, and BofA analysts are reluctant to include it in their rating due to a lack of clarity on costs, timing and potential subsidies.

Analysts increased their price objective for Enagas to 14.8 euros per share from 14.1 euros, reflecting a potential growth of 7%. This was based on a sum-of-the-parts assessment and included a more favorable outlook on Spanish regulatory yields, which are expected to improve by the end of the year.

However, despite these positives, BofA warned that Enagas’ future investment in H2 projects could result in capital expenditure being prioritized over dividend distributions after 2026.