Power Price Surge May Boost European Utilities, Barclays Says

(Bloomberg) -- With power prices in Europe hitting record levels, the region’s utilities are in a sweet spot, according to Barclays Plc analysts.

Rising prices are “still not adequately reflected in consensus earnings for utilities,” analysts including Peter Crampton wrote in a note, in which they said European power generation faces a “perfect storm.”

The Stoxx 600 Utilities Index rose 1.7% on Tuesday to its highest since August as France scrambled to keep its lights on, sending electricity prices to new records. It gave back some of those gains on Wednesday, falling 1% as gas and power prices eased. The subindex remains the year’s second-worst performing sector, up a mere 3%.

Crampton sees the likely boost to earnings from higher power prices driving increased positivity among investors, particularly for European utilities that have been left behind even though they should benefit. He cited Enel SpA, EDF SA, Engie SA and RWE AG.

European gas and electricity costs soared to fresh records this week. The benchmark for power prices has increased sixfold this year and may not be done rising yet.

“Concerns over low German gas storage levels this winter and related issues could continue to build, resulting in sustained high power prices and driving further major mark-to-market consensus EPS upgrades, with power prices potentially going even higher,” Crampton wrote.

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