Red Electrica Advances on Softer Blow From Reforms

Red Electrica Corp. SA (REE), Spain’s electricity network operator, rose the most in three months in Madrid trading on speculation that national power-market reforms won’t harm sales as much as estimated.

The company forecast revenue from its transmission business of 1.6 billion euros ($2.1 billion) next year, according to a filing today. While that’s about 130 million euros less than analysts had estimated, they’d previously expected a reduction of 150 million euros, JPMorgan & Chase Co. said in a note.

Red Electrica jumped as much as 4.7 percent, the biggest intraday gain since April 10, and was up 1.8 percent at 39.02 euros as of 12:43 p.m. local time. The stock slumped 7.5 percent on July 12 after Spain’s government announced measures to cap earnings from power distribution.

Prime Minister Mariano Rajoy is working to eliminate a deficit in power-utility finances after successive governments forced generators to sell electricity to consumers at below the cost of production. The grid’s distribution unit will be limited to a rate of return on investment of 6.5 percent, while consumers’ power bills will rise, the government said last week.

Today’s statement from Red Electrica “will eliminate the debate about substantially larger reductions in revenues near-term,” Javier Garrido, a JPMorgan analyst with an overweight recommendation on the stock, said in the note. “While we await more details on the definitive regulatory framework, today’s statement should help limit the downside risk for the stock.”

To contact the reporter on this story: Patricia Laya in Madrid at playa2@bloomberg.net

To contact the editor responsible for this story: David Risser at drisser@bloomberg.net

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