H1 strength backs our OW sector ratings: European IG Utilities & European Energy

Research evidence excerpt

FICC Research

Credit Research

4 August 2026

European IG Utilities & European Energy

H1 strength backs our OW sector

ratings

The H1 results have confirmed the fundamental strength of

European Utilities and Energy. Beyond price effects, strategic

choices and financial discipline have reinforced the resilience

of cashflows and their robust IG positioning over the cycle.

We reiterate our Overweight sector ratings.

Overweight European IG Utilities and Energy

We reiterate our Overweight rating on the Pan European High Grade Utility sector. The sector

continues to offer a small pick-up over the index (c. 5bp, Figure 1), which remains attractive in

today’s tight-spread environment where carry is likely to continue driving returns. We like the

sector’s lower-beta, defensive characteristics and remain positive on the fundamentals. While

issuance has been, and remains, a technical headwind for the sector, the H1 26 results paint a

picture of a sector executing investment plans and delivering solid earnings. We view the

sector’s issuance needs as well sign-posted to the market and expect credit metrics to remain

under control.

We also remain Overweight the Pan European High Grade Energy sector. The sector has

outperformed the index year-to-date, supported by a favourable commodity backdrop, robust

earnings and strong cash generation. Despite this performance, the sector continues to trade

wide of the index, offering a moderate spread pick-up of 5bp (Figure 1). Importantly, we believe

any renewed escalation in the Middle East would create positive dynamics for the sector,

providing a useful tail hedge against geopolitical uncertainty, until a lasting resolution is

reached and the risks to growth and inflation fade.

While both sectors offer less spread pick-up than earlier in the year, our spread model still finds

value in Energy, which offers a sector premium of almost 9bp (Figure 2). Utilities no longer

screens outright cheap in our model, but valuations remain reasonable relative to other sectors

and are supported by the strong fundamental backdrop. We therefore remain OW both sectors.

This document is intended for institutional investors and is not subject to all of the

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