Investment firm Jefferies has begun covering Terna Rete Elettrica Nazionale SpA (BIT:TRN), Italy's leading electricity grid operator, with a Hold recommendation and a target price of €9.80. The cautious stance reflects concerns about the current premium valuation of the stock, despite the company's attractive growth prospects and a supportive regulatory framework.
Terna operates within a regulatory system that affords it higher allowed returns than most European peers, leading to an impressive average return on equity (ROE) near 14% over the last five years. This compares favorably to a typical ROE around 9% among its European counterparts. The company has effectively maintained a positive spread above its regulated return by roughly 250 basis points, a trend that Jefferies anticipates will persist going forward.
Looking ahead, Jefferies anticipates that Terna's Regulated Asset Base (RAB)—the value of its assets subject to regulation—will expand at a compound annual growth rate (CAGR) of about 9% through 2029. This growth is fueled by Italy’s substantial €18 billion investment program targeting the nation’s energy transition efforts.
However, earnings per share (EPS) growth is forecasted to be more modest, projected at 5.5% annually through the same period. This is partly due to anticipated increases in depreciation costs and financing expenses that will weigh on profitability.
Regarding Terna’s financial structure, Jefferies expresses some caution. The firm projects the company’s Net Debt to EBITDA ratio will climb from near 5.0 times in fiscal year 2025 to approximately 6.0 times by fiscal year 2029. While the existing financial position is deemed adequate to support Terna's upcoming investments, there is a potential need for an additional €3.5 billion in capital if investment outlays exceed current plans, which could constrain financial flexibility.
From a valuation standpoint, Terna’s shares currently trade at a significant premium—around 20% above the FY27 RAB—surpassing the historic average spread of 15%. Moreover, the company commands a price-to-earnings (P/E) ratio of 16.7 times for fiscal year 2026 and possesses a price/earnings-to-growth (PEG) ratio of 3.0 for 2026-2029, figures that are elevated relative to other regulated utilities.