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Investing.com -- E.ON’s (ETR:EONGn) 40% year-to-date stock rally has raised expectations around pending grid regulation reforms in Germany.
There will likely be further upside only if substantial regulatory improvements are made in June and July, according to analysts at Jefferies.
The German regulator is preparing the framework for the fifth regulatory period, starting in 2028 for gas and 2029 for electricity.
Key elements include allowed base returns and the scope for cost outperformance. These will directly affect E.ON’s grids business, which is projected to contribute 55% of group EBITDA in 2025.
Jefferies analyzed three scenarios for 2029, the first year expected to reflect any changes.
The high case assumes an all-in return on equity (RoE) of 10.8%, the mid case 9.6%, and the low case 8.5%.
The brokerage estimates potential EBIT upside of 8%, 5%, and 1% versus consensus under these scenarios.
Current consensus appears to price in moderate improvement, meaning only a path toward RoE above 10% could support a significant stock move.
A material catalyst would require a base equity return near 7%, plus scope for 4% outperformance.
In Jefferies’ mid-case scenario, the assumed pre-tax WACC is 6%, built on a 3% risk-free rate and 4.2% cost of debt.
The final framework is not expected before year-end, and it remains unclear how much detail the draft decision will contain.
E.ON’s valuation adds to the challenge. Jefferies estimates its Networks and EIS businesses trade broadly in line with peers such as National Grid (LON:NG), Redeia and Terna (BIT:TRN). The brokerage calculates an implied EV/EBITDA of 10.2x for 2027, just below the peer average of 10.4x.
That suggests any further outperformance would likely need to come from improved earnings, not valuation multiple expansion.
Jefferies maintains a “hold” rating on E.ON with a €16 price target, reflecting a 12-month total return potential of 7%.
The analysts raised its target from €13 after revaluing the grids segment. On current estimates, group EV/EBITDA for 2027 stands at 9.4x.