European Utilities Weekly: Underperformance returns

Research evidence excerpt

European Utilities Weekly: Underperformance returns

Deutsche Bank

Research

Europe Industry Date

Germany 3 July 2026

Portugal European Utilities

United Kingdom Periodical

Weekly

Utilities

Electricity

Underperformance returns

James Brand, CFA

c.1.5% underperformance WTD; end to war seemingly fully priced in Research Analyst

The sector underperformed the market by 1.5% WTD (-> Thurs close), in a return to +44-20-754-74705

recent sluggish form. Although it rose 52bps on an absolute basis. The sector TSR

Olly Jeffery

has still outperformed the market by c.5% YTD (vs 22% peak on 7th April). Research Analyst

+44-20-754-70055

Utilities were seen as benefiting from the uncertainty caused by the US-Iran war,

with the long process of reaching peace more than reversing the outperformance

at the start of the war. The sector still trades on a 3% premium to the market on year

ahead P/E. This is down from the 14% premium peak from 7th April.

EU power prices for 2027 were up 1-3% this week, driven by gas (+3%). Otherwise

there have been limited changes.

Within the week Orsted (+7%) and EDPR (+4%) were the best performers in our

coverage, with possible bottom fishing on the former and post a broker upgrade on

the latter. Notably UK water names were up 1-2%, ahead of the sector (+0.5%). The

worst performer was Italgas (-3%), having also underperformed last week (-2%),

following its CMD.

In client meetings this week, we feel investors appeared slightly more positive on

both UK power and water names.

A number of stocks stand out on key valuation measures

Pennon, Snam, United Utilities, SSE and Terna (Buys) and Severn Trent (Hold) offer

Sustainable Equity Cashflow yields of more than 10%. In 2031E, Engie, SSE, E.ON,