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Investing.com -- Deutsche Bank (ETR:DBKGn) has reiterated its positive stance on European utilities, highlighting the sector’s solid performance this year and upgrading Terna (BIT:TRN) and Pennon (LON:PNN) Group to Buy.
“European utilities have delivered 15% market relative outperformance and a 20% total shareholder return (TSR) since we turned positive in January,” said analyst James Brand in a note.
The upgrades came alongside a wave of recommendations and target price adjustments across the sector.
Pennon was raised from Hold to Buy with a price target increase from 500p to 540p. Terna was also upgraded from Hold to Buy, with the target lifted from €8.50 to €9.60.
Among other changes, Engie SA (EPA:ENGIE) and E.ON (ETR:EONGn) were reiterated at Buy with price targets raised to €21.50 and €17, respectively, while Iberdrola (BME:IBE), Enel (BIT:ENEI), and Elia (EBR:ELI) remained at Hold with upward revisions to their targets.
According to Brand, while the rally in utilities has left valuations looking “more normal against long-term multiples and relative to the market,” the sector still offers relative value amid broader market uncertainties.
“We feel quite confident in consensus earnings expectations for the sector, with potential downside risks for the market,” he said. “This leads us to keep a positive market relative view.”
The sector’s forward price-to-earnings (P/E) ratio has increased from 11.5x at the start of the year to 13.3x, which remains below the 10-year average of 13.9x and nearly in line with the 13.2x average since 2000.
Brand notes that even though the sector typically trades in line with the broader market, it currently trades at “a fairly modest 2% discount,” which the analyst views as attractive given current economic risks.