InvestorNews

Which factors are having the greatest impact on the financial markets right now?

The further escalation of the conflict in the Middle East remains the most significant factor that drives the high volatility of stock market trends – which, nevertheless, remain fundamentally on an upward trajectory.

With Brent around USD 100 once again, it has become even more difficult to predict the decisions of central banks, which are closely monitoring inflation trends as they formulate their monetary policy measures. Yields on 10-year bonds, whether we look at the Bund or the Treasury, have already risen sharply in recent trading sessions and are now at their highest levels in the past two months.

The start of the earnings season then added further volatility to the overall picture, leading to a reassessment of the so-called “AI trade”. Big tech results in line with estimates are no longer enough: given current multiples and, therefore, how much of future growth is already incorporated into stock prices, investors want to hear at least a confirmation of the earnings guidance announced alongside declarations of massive capital expenditure and AI investment plans. When assessing the performance of the broader market, we should also bear in mind that the FTSE MIB, the index of leading Italian blue-chip companies of which Hera is a component, has been one of the best-performing equity indices in Europe since the beginning of the year, driven by Oil & Gas, Technology and Financial stocks. Hera’s performance therefore has its benchmark in a very strong Italian market.

In this context, how did the utilities perform?

Major European utilities are at their year-to-date highs or close to them. They are continuing the upward trend that began in the fall of 2025, driven by high capital expenditures that are justified by robust electricity demand and the European decarbonisation policy agenda. Although some of the future earnings growth has already been priced into stock prices, the clear prospects for additional EPS growth create room for the rerating to continue.

Italian utilities, on the other hand – as the performance of the FTSE Italy All-Share Utility Index indicates – have not yet, on average, recovered to their late-February highs, although overall they continue to show considerable progress, around 10%, since the start of the year.

Anyway, in the short term, it is undeniable that interest rate pressures are creating at least some volatility in utility share prices, given that their valuations are highly sensitive to the interest rate assumptions used in Discounted Cash Flow (DCF) models.

How do these strong performances of the Italian market and the utilities sector compare with the performance of Hera stock?

I believe Hera has been overlooked by the market recently, even though we have already rebounded by nearly 10% from June's lows. We believe that the recent share prices, at around 3.9 euro, still points to a significant valuation gap between what the market is currently willing to pay for Hera and its fair value.
Following the presentation of the Business Plan to investors during an extensive roadshow, the stock reached a Price Earnings multiple of 14 times at the end of February, above the peer average. By June, Hera’s multiple had fallen to 11.6 times and, although it recovered slightly during July, it is still trading at a very cheap valuation relative to the quality and visibility of our earnings, at around 12.5 times.

How do you explain Hera's depressed valuation?

The reasons are difficult to pinpoint. Certainly, the significant weight of the extra profits generated in the past through opportunities that can no longer be replicated has, to some extent, made the assessment of fundamental performance in 2026 less immediate. However, that surplus cash flow generated in the past has been accumulated and now provides financial flexibility that is useful for covering the costs of future investments. As is also cristal clear from the data in the 2026 Half-Year Report, we are already leveraging that flexibility to continue growing in a disciplined way, with the aim to ensure that increased investments keeps pace with ongoing value creation. The double-digit earnings growth in the first six months of the year is, actually, fully in line with the TSR targets presented in the Plan last January, as is the risk profile, given that most of the EBITDA comes from regulated businesses and that the financial structure remains extremely conservative.

The market also appears not to have fully recognised the potential of our dual growth engine, with multiple opportunities to execute further M&A transactions on one hand, and a highly visible pipeline of investment opportunities to accelerate organic growth across our multi-business portfolio on the other.

What actions have you taken in response to this market misperception?

We want to demonstrate in a tangible way how much we believe that Hera shares are undervalued. Therefore, we have promptly moved to implement the renewed share buyback program, approved by the last Shareholders' Meeting for up to 60 million shares. One of the objectives of the share buyback program is also to be able to counter-dilute shareholders in the event of M&A transactions financed through the exchange of shares.

We will also continue to make our communications increasingly clear, so that the financial community can base their assessments on information and data that help to provide the best possible understanding of our performance. In this regard, analysts have high expectations because, in this Half-Year Financial Report, for the first time we present the breakdown of consolidated EBITDA by strategic business area rather than by business unit – an effort that aligns with the need to have direct access to performance metrics for Networks, Waste and Energy.

What changed in the consensus after the publication of 2026 first quarter’s results?

There have been no changes in either the analysts’ recommendations or their price targets; they remain consistent with the views they expressed following the presentation of the Business Plan. The average target price, therefore stable at 4.52 euro, continues to be far away from recent trading prices, indicating potential upside of around 15%.