Earnings Call Transcript: Naturgy Lifts 2026 Outlook in Q3 2026 Update

Naturgy Energy Group reported stronger results for the first nine months of 2026 and raised its full-year outlook for the second time this year. Improved performance in regulated networks and thermal generation offset weakness in the supply business and elevated working capital requirements.

The Spanish utility posted EBITDA of €4.3 billion, up 4% year over year, while net income increased 5% to nearly €1.8 billion. Net debt remained broadly stable at €12.3 billion, and the company confirmed a second interim dividend of €0.60 per share.

Key Takeaways

• Naturgy now expects 2026 EBITDA to exceed €5.6 billion and net income to reach approximately €2.2 billion.
• Funds from operations increased 8% to €3.6 billion.
• Free cash flow after minority interests exceeded €1 billion, broadly covering €1.1 billion in dividends paid during the period.
• Electricity networks and thermal generation were the main drivers of earnings growth.
• Supply EBITDA fell to €353 million from €500 million due to higher ancillary-service costs and losses linked to regulated gas tariffs.
• Liquidity remained above €10 billion.

Business Performance

Naturgy said its integrated business model helped it navigate volatile commodity prices and changing energy demand. Gas networks, electricity networks, thermal generation and renewables all contributed positively, while energy management remained relatively stable.

Electricity networks delivered the strongest increase, with EBITDA rising 26% to €953 million. Growth reflected a larger regulated asset base, improved remuneration and €126 million of year-over-year gains related to retroactive recognition of prior-period operation and maintenance payments in Spain.

Gas networks generated EBITDA of €1.41 billion, up 5%. Performance benefited from tariff updates and improved regulatory frameworks across several markets, including Spain, Mexico, Argentina and Chile.

Thermal generation EBITDA increased 15% to €601 million, supported by stronger demand for ancillary services and grid-balancing capacity in Spain. Management said combined-cycle gas plants remain essential to security of supply as renewable generation expands.

Renewable generation EBITDA advanced 3% to €466 million. Naturgy added 473 megawatts of capacity during the year and expected another 500 megawatts to begin operating before year-end. The company plans to prioritize selective growth, repowering projects and battery-hybrid investments where these complement its integrated operations.

Energy management produced EBITDA of €676 million. Higher margins and favorable hedging partly offset lower volumes following the expiration of a contract in Oman.

Supply Business Under Pressure

The supply division was the main weak point. EBITDA declined to €353 million from €500 million a year earlier. Electricity margins were affected by higher ancillary-service costs, while regulated gas tariffs failed to reflect market costs fully.

Naturgy recorded a €100 million provision for expected losses associated with regulated gas tariffs. Management does not currently expect another provision, although the amount could be revised depending on energy prices and market conditions. The company is also repricing electricity contracts where possible and prioritizing margins over market share when renewing its industrial portfolio.

Cash Flow and Balance Sheet

Cash flow from operations was approximately €2.5 billion after working capital absorbed nearly €1 billion. The increase in working capital reflected higher gas prices, inventory accumulation ahead of winter and a one-time payment connected with the Sonatrach pricing settlement.

Capital investment totaled €1.04 billion. Despite the cash demands, free cash flow after minority interests exceeded €1 billion, and net debt remained unchanged from the end of 2025 at €12.3 billion.

Approximately 60% of Naturgy’s debt carries fixed interest rates. The average cost of debt remained near 4%, while net debt was equivalent to roughly 2.2 times EBITDA. Management expects net debt to finish 2026 below €13 billion.

Raised 2026 Guidance

Naturgy increased its EBITDA forecast to more than €5.6 billion. This compares with guidance of €5.4 billion in July and an initial expectation of about €5.3 billion. Net income is now projected at approximately €2.2 billion, up from the previous forecast of €2.1 billion.

The upgraded outlook reflects stronger results through September, improved gas and electricity margins, greater visibility for combined-cycle generation revenue and exceptional remuneration in Spanish electricity distribution.

The company confirmed a full-year dividend of €1.80 per share. Its second interim payment of €0.60 per share is scheduled for November 5, 2026.

Growth Strategy and 2027 Outlook

Management described the targets in Naturgy’s 2025–2027 strategic plan as a floor rather than a ceiling. Potential upside for 2027 includes new network regulations, increased investment capacity in Spanish electricity distribution, improved LNG margins and possible contributions from the Yamal contract.

Naturgy said its 2027 LNG volumes are fully hedged, providing margin visibility. Management also sees opportunities from market volatility in 2028 and 2029.

The company is evaluating acquisitions but emphasized that value creation will take priority over increasing scale. Its preferred areas include electricity-related assets in Western Europe and North America, although gas opportunities may also be considered at attractive prices. Naturgy said it is in investment mode and is not currently planning major asset disposals.

Spain’s higher electricity-network investment cap could allow approximately €1.3 billion of additional investment for Naturgy’s distribution business through 2030. Management is also considering renewable assets in markets where the company can benefit from an integrated generation and supply position.

Main Risks

• Continued pressure on supply margins from competition and regulated tariffs.
• High working capital needs caused by energy prices and seasonal inventory requirements.
• Regulatory uncertainty affecting tariffs, network returns and capacity payments.
• Commodity-price volatility and geopolitical disruption in gas and LNG markets.
• Execution and valuation risks related to acquisitions and new investments.

Overall, Naturgy’s nine-month update showed resilient operating performance, a stable balance sheet and increased confidence in full-year results. Networks and flexible generation remain the company’s principal earnings drivers, while supply margins and working capital are the main near-term challenges.