As globalized economies are in a rut due to inflation, it may be an opportune time to seek out bargain hunting for attractive foreign stocks such as Red Eléctrica Corporación, S.A. (RDEIY), Centrica plc (CPYYY), and Empresa Distribuidora y Comercializadora Norte Sociedad Anónima (EDN), which show an upside potential over the long term.
In recent news, the dollar dipped to a two-month low against a basket of currencies and a one-year low against the euro after the U.S. producer prices unexpectedly fell in March, raising hopes that the Federal Reserve is near the end of its rate hiking cycle. The dollar index fell to 100.86, the lowest since February 2, while the euro reached $1.10660, the highest since April 1, 2022.
Moreover, the Fed minutes show that the U.S. banking crisis could push the economy into a recession later this year. On top of it, on the backs of recessionary fears, U.S. fund managers are increasing their investments in foreign markets amid concerns about domestic underperformance.
Although markets continue to be volatile, it could be a good time for those looking to diversify their portfolios in hopes of greater upside for foreign stocks going forward. Therefore, investors could consider bargain-hunting for stocks such as RDEIY, CPYYY, and EDN, trading under $10, given their solid fundamentals and strong growth prospects.
Red Eléctrica Corporación, S.A. (RDEIY)
Based in Alcobendas, Spain, RDEIY engages in the electricity transmission, system operation, and management of the transmission network for the electricity system globally.
On February 28, the company increased its subsidiary Red Eléctrica, the Transmission System Operator’s (TSO) investment target by 10% to €4.8 billion ($5.26 billion) in order to accelerate the green transition in Spain. Moreover, forecasts for 2023 envisage investment in excess of €700 million ($766.84 million) to help drive the green transition, a figure close to the TSO’s all-time high regarding annual investment in the grid.
While driving the green transition is one of the three pillars of the company's roadmap for 2025, it should help boost connectivity and its international business.
On January 24, RDEIY issued perpetual green hybrid bonds worth €500 million ($547.74 million), with a coupon rate of 4.625%. The funds raised should enable the company to reinforce the solidity of its capital structure to continue making the investments foreseen in Electricity Plans 21-26.
In terms of forward EV/EBITDA and EV/EBIT, RDEIY is trading at 9.00x and 13.85x, 20.5% and 31% lower than the industry averages of 11.32x and 20.08x, respectively. Also, its trailing-12-month Price/Cash Flow multiple of 5.79 compares to the industry average of 9.93.
RDEIY’s revenue increased 3.2% year-over-year to €2.02 billion ($2.21 billion) for the fiscal year 2022 (ended December 31, 2022). The company’s EBITDA and consolidated profit for the period amounted to €1.49 billion ($1.63 billion) and €681.19 million ($746.23 million), respectively, in the same period. Also, its free cash flow for shareholders increased 55.2% year-over-year to €1.62 billion ($1.78 billion).
Analysts expect RDEIY’s revenue for the fiscal year 2023 to increase 4.7% year-over-year to $2.23 billion. Over the past three years, RDEIY’s levered FCF and total assets have grown at 37% and 5.3% CAGRs, respectively. Moreover, its revenue has grown at a marginal CAGR over the same period.
RDEIY has gained 28.4% over the past six months to close the last trading session at $9.09.
RDEIY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B for Momentum and Stability. Within the Utilities - Foreign industry, it is ranked #15 out of 55 stocks. Click here to see the other ratings of RDEIY for Growth, Value, and Sentiment.
Centrica plc (CPYYY)
Based in Windsor, the United Kingdom, CPYYY is an energy services and solutions company that operates through British Gas Services & Solutions; British Gas Energy; Centrica Business Solutions; Bord Gáis Energy; Energy Marketing & Trading; and Upstream segments. It serves residential, commercial, and industrial customers and small businesses, as well as offers energy-related services, and generates power from nuclear assets.
On March 21, CPYYY announced an agreement with Lhyfe to jointly develop offshore renewable green hydrogen in the United Kingdom. The companies have signed a memorandum of understanding (MoU) that could accelerate green hydrogen as part of the energy transition in the country.
Along with decarbonizing the U.K. power supply by 2035, Martin Scargill, Managing Director of Centrica Storage, believes this agreement will likely assist in achieving their long-term ambition to be the world’s largest hydrogen store, offering up to 16TWh of storage capacity.
On February 21, Vodafone and CPYYY signed a second major solar Power Purchase Agreement with MYTILINEOS S.A for the output from five solar farms under construction in England, producing an output of 216 gigawatt hours of green power and displacing more than 53,000 tonnes of CO2.
With an aim to boost long-term energy independence and security, this agreement is expected to benefit all three companies.
Chris O’Shea, Chief Executive Officer of CPYYY, said, “Power purchase agreements such as this are going to be essential to the growth of renewable energy in the UK and Europe, helping secure guaranteed returns for developers, and encouraging growth in the sector.”
In terms of forward EV/Sales, CPYYY is trading at 0.15x, 96.2% lower than the industry average of 4x. Likewise, its forward EV/EBITDA and EV/EBIT multiples of 2.24 and 3.00 are 80.1% and 85.1% lower than the industry averages of 11.28x and 20.10x, respectively.
For the fiscal year 2022 ended December 31, CPYYY’s group revenue increased 61% year-over-year to £23.74 billion ($29.56 billion). Its gross profit grew 25.5% from the year-ago value to £2.05 billion ($2.55 billion). The company’s adjusted operating profit improved 248.9% year-over-year to £3.31 billion ($4.12 billion), while its adjusted EBITDA increased 115.8% from the same period last year to £3.99 billion ($4.97 billion).
In addition, its adjusted earnings attributable to shareholders came in at £2.05 billion ($2.55 billion), representing a 115.8% year-over-year increase. Also, its adjusted EPS stood at 34.9p, up significantly year-over-year.
The consensus revenue estimate of $47.56 billion for the current year (ending December 2023) represents a 17.9% improvement year-over-year. Its revenue and EBITDA have grown at CAGRs of 22.3% and 36.2%, respectively, over the past three years. Also, its EBIT has grown at a 47.7% CAGR over the same period.
CPYYY’s shares have gained 90.2% over the past nine months and 25.3% year-to-date to close the last trading session at $5.72.
It is no surprise that CPYYY has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Momentum, Stability, Sentiment, and Quality. Out of 55 stocks in the same industry, it is ranked first. Get all CPYYY ratings here.
Empresa Distribuidora y Comercializadora Norte Sociedad Anónima (EDN)
Based in Buenos Aires, EDN is the largest electricity distribution company in Argentina and a subsidiary of Empresa de Energía del Cono Sur S.A.
In terms of forward EV/Sales, EDN is trading at 0.35x, 91.3% lower than the industry average of 4x. Also, its forward EV/EBITDA and Price/Sales multiples of 2.48 and 0.40 are 78.1% and 82.6% lower compared to the industry averages of 11.28x and 2.29x, respectively.
For the fiscal year that ended December 31, 2022, EDN’s net revenue amounted to ARS62.61 billion ($292.59 million), while its other operating income increased 10.4% year-over-year to ARS10.41 billion ($48.64 million). During the same period, the company’s total assets increased 3.6% year-over-year to ARS480.13 billion ($2.24 billion) compared to ARS463.27 billion ($2.17 billion) as of December 31, 2021.
EDN’s revenue grew at a CAGR of 27.6% over the past five years. Likewise, its EBITDA and total assets grew at CAGRs of 78.1% and 43.5%, respectively, over the past three years.
Street expects EDN’s revenue to increase 77% and 19.3% year-over-year to $1.82 billion and $2.17 billion in the fiscal years 2023 and 2024, respectively. Its EPS is expected to increase by 59.8% per annum over the next five years. Moreover, it surpassed the revenue estimates in three of the trailing four quarters, which is impressive.
Over the past nine months, the stock has gained 118.1% to close the last trading session at $8.90.
EDN’s POWR Ratings reflect solid prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
It also has a B grade for Growth, Value, and Momentum. It is ranked #12 out of 55 stocks in the same industry. To see the other ratings of EDN for Stability, Sentiment, and Quality, click here.
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RDEIY shares were trading at $9.13 per share on Thursday afternoon, up $0.04 (+0.44%). Year-to-date, RDEIY has gained 6.90%, versus a 8.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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