Endesa, one of Spain's largest electric utilities, is set to release its interim update on July 29, and analysts at Bank of America (BofA) believe the company has a helpful twist: a tax rollback and a court ruling that could lift earnings in the coming quarters.
The key driver, according to BofA, is not power prices but taxes. Spain's 7% generation tax was suspended for the second quarter, which BofA estimates is worth about €40 million of EBITDA (a measure of earnings before interest, taxes, depreciation, and amortization). The government has also said the tax will be phased down from the third quarter, adding roughly another €30 million benefit in BofA's model, and removed entirely by fiscal year 2028.
Court Ruling Adds One-Time Boost
On top of the tax phase-down, a May court decision could deliver about €0.1 billion of EBITDA, plus BofA estimates around €30 million of backdated interest. This one-time bump stems from a legal ruling that likely relates to past tax disputes or regulatory adjustments, though the exact details are not specified in the brief.
BofA also flags supportive operating factors like higher off-peak spot power prices and strong hydro conditions, which help its second-quarter forecasts of roughly €1.47 billion EBITDA and €590 million net income.
What It Means for Investors
Analysts often start with the “forward power curve,” which is basically the market’s best guess for where electricity prices will be in the years ahead. Because the tax cut is policy-driven, it doesn’t automatically show up in those price curves, so forecasts that lean heavily on them can understate future profit margins.
BofA says that’s why it sits 5%-6% above consensus earnings estimates from fiscal year 2027 onward. If the bank is right, Endesa’s share moves around the July 29 update may hinge less on day-to-day power prices and more on an earnings-revision cycle as other analysts refresh their longer-term models to reflect the lower tax take.
For everyday investors, this means that Endesa's earnings could get a multi-year boost from policy changes, not just from electricity demand or fuel costs. The tax phase-down is a structural shift that could improve margins for years, while the court ruling provides a one-time cash injection.
However, investors should note that the tax rollback is already priced into BofA's estimates, and the actual impact will depend on how quickly the government implements the phase-down and whether any legal challenges arise. The court ruling, while positive, is a one-off event and not a recurring source of profit.
For context, Endesa operates in a sector where regulatory changes can have outsized effects. Similar dynamics have played out in other markets, such as the Airbus strike in Spain and other European corporate developments, where policy shifts often drive earnings more than operational factors.
BofA's analysis suggests that the market may be underestimating the long-term benefit of the tax phase-down. If other analysts revise their models upward, Endesa's stock could see a re-rating. But investors should also watch for any signs that the government might delay or alter the tax removal, which would undermine the thesis.
Overall, the July 29 update will be a key moment for Endesa, as it will provide the first concrete evidence of how the tax tailwind and court ruling are flowing through to the bottom line. For now, the story is about policy-driven earnings growth, not just power prices.
