Three talking points on European utilities: short-term uncertainty versus long-term opportunity
Bobby Chada
Equity Investment Analyst
  • Attractive economics of, and growing political support for, renewables is creating a compelling long-term backdrop for European utilities.
  • Ongoing uncertainty around the energy crisis in the region continues to influence the immediate prospects for the sector.
  • From an investment perspective, valuations remain depressed, seemingly discounting a good deal of this short-term risk.

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.

Bobby Chada is an equity investment analyst at Capital Group with research responsibility for European utility and medical technology companies. He has 27 years of investment industry experience and has been with Capital Group for six years. Prior to joining Capital, He holds a bachelor's degree in finance and accounting from the University of Edinburgh. Bobby is based in London.

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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.