Despite ongoing uncertainty created by the energy crisis, the mid- and long-term outlook for European utilities remains compelling, supported by a fast-growing renewables sector.

Based on a ‘green trifecta’ of attractive economics and political support behind renewables, plus the industry having companies with solid balance sheets to invest in this area, growth in these companies could double the level of the last 20 years over the next decade.

There is already evidence to support this: from 2010 to 2018, European utilities’ earnings lagged the market substantially but as the rise in renewable energy sources has started to become material, the industry has grown ahead of the market (at 6-7% per annum) for the last five years.

Faster growth than market: EU utilities vs. global equities (earnings per share)

Past results are not a guarantee of future results. For illustrative purposes only. Investors cannot invest directly in an index.
Data as at 7 March 2023. Source: Bloomberg, data rebased to 100 as of 1 January 2018.
Chart compares earnings per share (next 12 months), in euros, of the Stoxx Europe 600 Utilities Index versus the MSCI All Country World Index (ex-US).

In this piece, Capital Group equity investment analyst Bobby Chada discusses three key considerations for the sector, weighing short-term uncertainty against long-term opportunity and how valuations reflect this current mismatch.