InvestorNews

What made investors shift back to utilities in 2025?
It is an industry that generally benefits from a low-interest rate environment, both because declining bond yields make the utilities’ dividend yields more attractive, and because lower capital costs result in higher valuations under Discounted Cash Flow models.
But that’s not all. Utilities are also seen as a sector with clear long-term growth prospects, due to the significant capex allocated to enabling the energy transition. These investments – such as in the case of Hera – are mainly focused on regulated networks, which offer visible allowed returns.
There is strong consensus, especially in Europe where political support for the energy transition remains firm, that electrification demand will grow sharply over the coming decades. Utilities with credible investment plans can therefore count on long-term growth that will support future earnings.

Within such a favourable scenario for long-term prospects, what prompted investors to buy utilities specifically at this stage?
In the context of extreme uncertainty - which has made it difficult to forecast demand and profitability across many business areas, from luxury goods to new technologies - utilities have emerged as a safe haven even in the short term. They also benefited from very low market multiples, considering that they are trading at a significant discount both compared to their historical levels and to the broader market. These considerations around multiples were the trigger that sparked the buying activity…

And what factors do you believe that have specifically driven Hera’s share price hike?
I believe it was essentially our entrepreneurial approach, consistent over time, built on a well-balanced portfolio of business activities. This low-risk management of a high-quality asset base has proven capable of delivering resilient financial results, even in the face of health, energy, and financial crises that occurred. Investors brought the share price to 4.4 euro, recognising a premium for the way Hera navigated the various phases of external turbulence, continuing to meet the targets of the Business Plan and maintaining healthy fundamentals.

In recent weeks, the stock has pulled back slightly, dipping just below 4 euro. How do you interpret this movement?
After the intense upward run of the first five months of the year, it was physiological that a correction would occur. I believe that pessimism about global growth has been somewhat reduced in recent weeks compared to what had been feared between March and April. This has pushed investors back into risk-on mode. They have taken profits from utilities to shift towards financials and technological innovation stories. However, I believe that the long-term drivers of the utilities sector remain solid. That will allow Hera to recover higher levels of multiples that are achievable even as risk appetite increases. Just consider that at the beginning of the year, on January 2, 2025, with a share price of 3.5 euro and based on consensus estimates, Hera was trading at a Price/Earnings ratio of 11.6. By June 2, at the high of 4.4 euro, we reached a multiple of 13.7. Today, we are once again trading just above 12 times analyst estimates for 2025 earnings: compared to the 15-year historical average of 15.5 times the earnings, there is large room for P/E expansion.
One final point worth noting: the only factor that could potentially weigh on utilities’ earnings outlook is the normalisation of gas and coal prices back to long-term levels, which might compress operating margins for players heavily exposed to power generation. This risk, however, does not affect Hera, which maintains a neutral position with respect to energy commodity prices.

How do analysts in your coverage view that potential upside?
Following the release of Q1 2025 results, consensus target price was further revised upwards, from 4.17 to 4.27 euro. Analysts are now evenly split between neutral ratings and buying recommendations - a stance that can also be explained considering that, in recent months, the stock has exceeded the average target price for a certain while.
At recent price levels, consensus target price once again points to a potential upside of over 10%. This picture, however, does not fully reflect the strong fundamentals confirmed in the Half-Year Report, which shows an increasingly structural quality of growth-driving factors and an unchanged potential for financial firepower, given the low level of leverage.