UBS Equities-Global Equity Strategy _Facts and Figures Utilities − six r...-107410180

Summary of Key Points from the Conference Call Industry Focus - The report emphasizes the Utilities sector, particularly Transmission and Distribution (T&D) companies in Europe as a key investment focus [1][2][22]. Core Insights and Arguments 1. Cyclicals vs. Defensives: - Cyclical stocks are currently priced for extreme optimism, with a significant premium over defensives, indicating potential overvaluation [2][3]. - T&D utilities are categorized as 'growth defensives', suggesting they may offer more stable returns in the current market environment [2]. 2. Valuation Metrics: - Global utilities are near all-time low relative P/E ratios, historically outperforming 75% of the time over the next month when at these levels [4][5]. - Utilities rank 4th and 8th in valuation scorecards globally and in Europe, respectively, indicating strong relative value [6]. 3. Earnings Revisions: - There is a notable decoupling between earnings revisions and stock performance in the utilities sector, with earnings momentum remaining strong despite performance lagging [8][12]. 4. Market Sentiment: - European utilities are viewed as oversold, with a 66% historical tendency to outperform in the short term when at current levels [13][14]. 5. Electrification Trend: - The report highlights electrification as a significant growth theme, projecting a shift where 70% of energy demand will come from electricity by 2050, compared to 20% today [15][16]. - Factors driving this growth include the rise of green hydrogen, increased demand from data centers, and lower costs of renewable energy due to excess capacity in China [17][18]. 6. Catalysts for Growth: - A slowdown in US GDP growth is anticipated, which may shift investor sentiment towards utilities [19]. - Falling bond yields are expected to benefit regulated utilities, which are highly leveraged [21]. - Regulatory changes in renewable energy projects may also act as a catalyst for growth in the T&D sector [19][21]. Investment Recommendations - The report identifies specific companies within the T&D space that are rated as "Buy": - In Europe: National Grid, E.ON, SSE, Terna, Redeia. - In the US: Sempra, Eversource, Edison International, PG&E [22][23]. Additional Insights - The report notes that the utilities sector is sensitive to electricity demand rather than power prices, which positions T&D companies favorably in the current market [21]. - The analysis includes a detailed breakdown of the business mix of various utilities, highlighting their focus on transmission and distribution [24]. Conclusion - The utilities sector, particularly T&D companies, presents a compelling investment opportunity due to favorable valuation metrics, strong earnings momentum, and significant growth potential driven by electrification and regulatory support [1][4][15].