EnBW : EnBW: a defensive play in the utilities sector

We are initiating coverage of German vertically integrated power and gas utility EnBW . EnBW positions itself as one of Europe’s last remaining fully vertically integrated utilities . It enjoys footholds all along the power and gas value chains, through activities in electricity generation, electricity and gas transmission and distribution, electricity, gas and water supply. In response to structural changes affecting the German sector, EnBW has undertaken a deep overhaul of its asset base to align with the emerging contours of the energy transition , in keeping with a fully vertically integrated business profile. In Spring 2024, EnBW unveiled its strategic roadmap through to 2030 in a move to accelerate the transformation initiated in 2011 . The plan notably features €40bn of total gross capex over 2024-30 with a focus on grids and renewable energies expansion. The recent AGM saw the approval of a capital increase to support the Group’s investment plan. The ~€3bn targeted proceeds would enable EnBW to finance additional investment needs of up to €10bn through to 2030. The planned capital increase together with continued financial discipline should help absorb the peak in capex effort over 2025-26 and ultimately enable EnBW to maintain credit metrics compatible with the current A- / Baa1 ratings at S&P / Moody’s (stable outlooks being attached to both ratings). Relative value-wise, on the senior side, EnBW bonds look attractive vis-à-vis those of relatively close comparables E.ON, RWE and Iberdrola. On the hybrid side, EnBW spreads do not appear uniformly wide or tight in our valuation model. Z-spread-wise, the most attractive instrument is the c.28 bond.