Jefferies has commenced coverage on two prominent European transmission operators and updated its ratings and price targets on several companies within the utilities sector. These adjustments are driven by fresh regulatory clarity and varying expected growth rates through fiscal 2029.
National Grid, the UK-based company, saw its price target elevated from 1,260p to 1,410p, with the brokerage maintaining a “buy” rating. This upgrade follows regulatory certainty achieved for about 80% of its regulated asset base stretching into fiscal 2028. Specifically, the Final Determination on UK electricity transmission regulation encompasses segments including UK Electricity Transmission accounting for 37% of the group's fiscal 2026 regulatory asset base (RAB), UK Electricity Distribution at 18%, NiMO at 15%, and Mass Gas and MECO contributing approximately 10%.
Jefferies projects National Grid's RAB to expand at an annual compound rate of 11% and anticipates earnings per share (EPS) to grow at 8% annually from fiscal 2025 through 2029. These estimates surpass the company's internal guidance of around 10% RAB growth and 6-8% EPS growth respectively. The stock currently trades at a price-to-earnings (P/E) ratio of 14.2 times projected fiscal 2027 earnings, compared to the sector average of 13 times.
In its inaugural coverage of Elia Group, a Belgian-German transmission operator, Jefferies assigned a “buy” rating with a €135 price target. Elia is forecasted to experience the fastest RAB growth among its European peers, with a projected compound annual growth rate of 17% through fiscal 2029. EBITDA growth is similarly robust, estimated at 20% CAGR during the same period, underpinned by a substantial €27 billion investment plan spanning fiscal years 2024 to 2028.
Elia's shares trade at a 16 times P/E multiple for fiscal 2027, slightly above the 15 times average of transmission system operator (TSO) peers. Nevertheless, its price-to-earnings-to-growth (PEG) ratio is notably the lowest at approximately 1.1, relative to a peer median around 2.0. The stock commands a modest 9% premium to fiscal 2027 RAB estimates, while other TSO peers average a 22% premium.
Italian transmission company Terna was assigned a “hold” rating with a €9.8 price target. Despite an anticipated RAB compound growth rate of 9% over 2026-2029, EPS growth is projected to be slower at 5.5%, influenced by rising financial costs. Terna's shares trade at approximately 16 times fiscal 2027 earnings with a PEG ratio of 2.5 compared to a peer average PEG of 2.9.
For Spanish operator Redeia, the “hold” rating was maintained, but the target price was reduced by 12% to €15.8. This adjustment reflects a lower allowed weighted average cost of capital set at 6.58%, down from Jefferies' prior estimate of 6.75%. Redeia's EPS is forecasted to grow at a 4% compound annual rate between 2026 and 2029.
German utility E.ON remains rated “hold,” with its price target steady at €16.7. The brokerage anticipates a post-tax base cost of equity of 6.4% for the regulatory period of 2029-2033, compared to 4.9% for the preceding term.
In the UK water sector, Jefferies upgraded Severn Trent to “buy” with a 3,220p price target, representing a 23% increase. Conversely, Pennon was downgraded to “hold” with a target of 590p. United Utilities retained its “hold” rating at 1,320p. These revisions align with the UK government's Water White Paper advocating regulatory reform and the Environment Agency's pledge to resolve enforcement actions dating from 2021 and earlier by April 2026.
Projected regulatory capital value (RCV) compound annual growth rates for fiscal years 2026-2030 are forecasted at 9% for Severn Trent, 6% for United Utilities, and 5% for Pennon. Corresponding net income growth estimates stand at 9%, 4%, and 3%, respectively.
These changes underscore varying fortunes across the utilities sector, driven by regulatory shifts, investment plans, and cost of capital adjustments affecting shareholder returns and growth expectations.
Jefferies has launched coverage on Elia Group with a buy rating and set new price targets for several European transmission operators amid enhanced regulatory visibility and varied growth expectations through fiscal 2029. National Grid's price target was raised, Redeia's target was lowered on cost of capital adjustments, and mixed ratings were assigned across the sector.
Key Points
- Jefferies initiates buy rating on Belgian-German transmission company Elia with a €135 price target, forecasting rapid asset base and EBITDA growth through 2029.
- National Grid’s price target increased reflecting regulatory clarity covering 80% of its regulated asset base until fiscal 2028, with expected RAB and EPS growth surpassing guidance.
- Redeia’s price target cut due to lowered allowed weighted average cost of capital; other utilities receive mixed ratings amid differing growth and cost outlooks.
Risks
- Changes in regulatory frameworks and cost of capital assumptions introduce uncertainty to earnings and valuation projections for utilities companies.
- Rising financial expenses may constrain earnings growth, as observed in Terna’s anticipated EPS performance lagging its asset growth.
- Enforcement actions and regulatory reform timelines in the UK water sector could affect operational stability and investment returns for sector participants.