Endesa's Earnings Are Finally Regulated — And That Is Why the Guidance Won't Move

Half of EBITDA now comes from networks and non-mainland generation; the other half is hostage to an ancillary-services bill nobody can control

ELE.MC · Earnings Call · 2026-10-28

The wires became the business

For most of the last decade Endesa sold itself as an integrated Iberian generator-retailer whose earnings quality was hostage to the pool price. That framing no longer fits. The first nine months of 2026 delivered EBITDA of €4.6 billion (up 8% reported, 13% excluding a €0.2 billion workforce restructuring provision) and net income of €2.0 billion, up 15% — but the composition is what matters. CEO Gianni Armani put it plainly: “EBITDA growth is heavily driven by the contribution of our regulated business with -- which increased from about 40% to approximately 50% of total EBITDA, reflecting the growing weight of network and non-mainland generation and further improving the visibility and predictability of our earnings.” — Gianni Armani, Chief Executive Officer (CEO) · 2026-10-28 Networks EBITDA rose 25% on a gross margin up 20% to €2.2 billion, driven by the new regulatory framework live since January 2026 plus prior-year settlements booked in Q1 and Q3. Grid CapEx jumped 42% to €0.9 billion and the regulated asset base reached €11.3 billion. That is the real re-rating engine — a compounding, regulated asset base rather than a weather bet. The company's own keyword footprint confirms the pivot: this quarter's top themes are firm capacity, non-mainland generation, the capacity market, demand growth and security of supply — the vocabulary of system architecture, not of margin defence. Two quarters ago the same list led with non-mainland generation, retail business and cost-based valuation; the emphasis has migrated from defending margin to designing the system.

The volatility tax nobody budgeted for

Offsetting that quality improvement is a cost line that has become structural rather than episodic. On ancillary services, Armani did not soften it:

We are experiencing a significant growth in ancillary service cost, 40% up to the end of September. The total amount is above EUR 4 billion, and we forecast at the end of the year between EUR 5.5 billion and EUR 6 billion estimate total cost.
Gianni Armani, Chief Executive Officer (CEO) · 2026-10-28

The P&L mechanics are ugly: a roughly €200 million negative on supply, partially offset by about €100 million on thermal generation. Management's answer is regulatory — socialise the cost of system security across all consumers, as Portugal has done — which is an ask, not a result. This is not a new theme, and that is precisely the point. Fifteen months ago the CFO called it “the worst quarter ever, our horribilis quarter” — Marco Palermo, Chief Financial Officer · 2025-07-29 after the blackout-driven spike, and in October 2025 quantified the gross drag at roughly “EUR 75 million per quarter” — Marco Palermo, Chief Financial Officer · 2025-10-29. Five quarters later the number has grown, not normalised. The higher ancillary services burden is now a standing tax on being the largest long retail position in a renewable-heavy grid — and the fix sits with a regulator, not with management.

Strong numbers, immovable guidance

Here is the tension worth sitting with. Net ordinary income of €2.10 billion is already 22% higher year-on-year, against guidance of "more than €2.4 billion" for the full year. Management declined to lift it: “We have not raised our guidance in this context given the volatility of prices that we are registering and also the unusual condition -- weather conditions that we have registered all through the third quarter with a significant lack of production, both in hydro and particularly in wind.” — Gianni Armani, Chief Executive Officer (CEO) · 2026-10-28 That is consistent behaviour rather than evasion — the prior cycle carried the identical tell, when the same management insisted “we don't use to change our guidance, but believe us, we feel very, very comfortable” — José Gálvez, Chief Executive Officer · 2025-10-29 before landing at the top of the range. But the quality of this year's beat deserves scrutiny. The CFO conceded the non-recurring tail is bigger than previously flagged: “We have communicated in the previous call around EUR 200 million of extraordinary items coming from non-mainland and distribution... we are some dozens on top of EUR 200 million impacting.” — Daniele Caprini, Chief Financial Officer (CFO) · 2026-10-28 Strip out the court-ruling resettlements and the ordinary base is less spectacular than the headline.

What management stopped talking about

The most telling signal is an absence. Two years ago data center was the company's number-one keyword by a distance — the thing Armani and the CFO volunteered unprompted on every call, with tens of gigawatts of connection requests as the prop. This quarter it survives only obliquely, smuggled in under "real estate." Regulatory reality has caught up: José Casas was explicit that the draft submitted to the Council of State, with its 80% renewable-matching requirement and a transitional regime that exposes operators to uncompensated disconnection, is “not being enough to fully remove the main barrier to investment” — Jose Casas, General Manager of Institutional Affairs, Regulation and Sustainability · 2026-10-28 and will slow development where project economics are tight. That matters because Spain's electricity demand growth — mainland demand up 3.3% in the nine months, residential +5%, industrial finally +1.3% — is the load-bearing assumption under the whole grid-investment story. And the global tape is voting the same way: AI data center equities are still up more than 50% over twelve months but have given back roughly 5% across both the 90-day and 30-day windows. The theme is fading, not broken. What replaced it in the narrative is politics and firmness. The election in November is the named risk, with Casas arguing the 2025-2030 transmission plan and the first capacity auctions clear regardless of outcome. Almaraz's life extension to June 2030 is the tangible win — a template for treating nuclear as strategic firm capacity rather than a sunset asset, and one that pairs naturally with the demand response mechanism now being designed.

The capital allocation question

Leverage sits at a very healthy 1.8x net debt to EBITDA, against a stated comfort zone of 2.5-3x that the CFO has repeated for over a year (“I guess that the correct level probably is something between 2.5% and 3% in terms of leveraging” — Marco Palermo, Chief Financial Officer (CFO) · 2025-05-09). The €2 billion buyback is 70% done, €1.4 billion executed, with explicit guidance of nothing further: “we are fully committed in finalizing what -- what has been approved by the Board and nothing beyond that for the moment” — Gianni Armani, Chief Executive Officer (CEO) · 2026-10-28. Note that no price tape was available for this ticker, so the "shares have significantly outperformed" premise put to the CEO by analysts cannot be verified from the data here — treat it as a claim, not a fact. The real optionality is M&A. Armani's framing is unusually blunt: volatility is squeezing pure players in renewables and supply, and an integrated owner with real assets can buy what others are forced to sell. With a February 2027 strategic plan update due and a Spanish framework that still refuses to index returns to inflation, the honest read on Endesa today is this — the earnings quality is genuinely better than it has been in years, the growth is genuinely regulated, and the two things that could break the story (an ancillary-cost regime that never gets socialised, and a data center pipeline that shrinks rather than materialises) are both outside management's control.