Why Redeia could be an investment opportunity after the blackout crash

While investigations into the causes of the massive blackout that hit Spain last Monday remain ongoing , Redeia's shares continue to struggle with uncertainty on the stock market.

The Spanish electricity grid operator has seen its stock market decline by more than 6% since that day, representing a loss of approximately €700 million in market capitalization. This move is particularly striking when compared to the gains of 2.7% and 2.56% recorded by some of its main market peers, such as Enagás and Italy's Terna.

In recent days, several firms have pointed to the uncertainty surrounding a possible fine for their responsibility in the blackout as a key reason for investor caution, with firms such as Bank of America and BNP Paribas opting to lower their ratings on the stock.

However, there are also voices who believe that the punishment suffered by the company chaired by Beatriz Corredor is excessive and that the recent cuts may represent an attractive buying opportunity. This is the view defended by UBS analysts in a report published this week.

In a report signed by Gonzalo Sánchez-Bordona, the Swiss bank argues that the more than eight percentage points of poorer performance compared to Enagás or Terna imply " a destruction of relative value of €800 million , which suggests that the market is discounting a potential liability for Redeia in that amount." However, they estimate that in the worst-case scenario, the sanctions the energy group could face would entail a much lower cost, barely a third of that amount.

Based on preliminary government calculations, which estimate losses from the blackout at a maximum of €800 million, UBS estimates that "if Red Electrica were found guilty of negligence (as in a much smaller case in 2007), it could be subject to compensation for claims filed in court and, potentially, a fine of up to €60 million." In that case, they add, "we believe most of the smaller claims would not go to court, so if we assume only a third of the damages are claimed and awarded, we estimate a maximum potential risk of €200-300 million for Red Electrica, including a fine."

However, they believe the most likely scenario is that the blackout will be considered a case of "force majeure," which would avoid the risk of fines for the energy group.

Considering all this, UBS points out that the market is overreacting to Redeia's risks and defends the purchase "in one of the few network companies we like in the sector." The Swiss bank has given Redeia a target price of €20.20 per share , representing a 13% upside potential compared to Tuesday's closing price.

The market consensus, however, is somewhat more cautious about the group's outlook. According to data compiled by Bloomberg , only 39% of the firms covering the stock recommend buying its shares, while 48% maintain a neutral recommendation and 13% recommend selling. The average price target stands at €18.81, representing a potential of 5.26%.