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Investing.com -- European utility stocks have held up relatively well against a sharp rise in gas prices triggered by Middle Eastern conflict, with the broader STOXX Europe 600 falling 8% compared to a 4% decline for the sector over the 10 days to March 9, according to a UBS research note dated Wednesday.
UBS analysts said Q4 2026 TTF gas prices rose from €32/MWh on Feb. 27 to €53/MWh on March 9, while futures curves as of March 9 show near-term prices up c€22/MWh, or approximately 60%, with 2027 contracts up c€10/MWh compared to Feb. 27 levels.
"The sector is attractive on fundamentals, even with the strong performance in 2026 YTD. Multiples are not yet unjustifiable at 16.5x P/E," the brokerage said.
The Swiss brokerage named Enel, RWE and Grenergy as its most favored stocks, with buy ratings and price targets of €10.2, €55 and €130 respectively, while flagging Verbund, Drax and Severn Trent as least favored.
UBS said companies with trading operations, Centrica, RWE, Engie and Naturgy, stand to benefit most if elevated energy market conditions persist, as trading businesses are typically outside the scope of windfall taxes, including storage, LNG and power market trading.
Battery Energy Storage Systems represent another potential beneficiary, with UBS noting payback periods in the UK ran to c18-24 months for plant that operated during the 2021-23 energy crisis. Grenergy carries the clearest exposure to BESS among covered stocks, the brokerage said.
On interest rates, 10-year nominal bond yields have risen 30 basis points in the UK, c25bps in Italy and Spain, 20bps in France and 15bps in Germany since the conflict began, weighing most heavily on renewable-focused names. Solaria, EDPR, Grenergy and EDP were identified as most rate-sensitive.
Verbund and Fortum carry the highest earnings sensitivity to power prices, with a €10/MWh move translating to roughly 18% and 13% EPS impact respectively for 2027, per UBS estimates.
On demand, EU27 power consumption came in at 224 TWh in February 2026, down 0.6% year-on-year, sitting 5% below the 2015-19 pre-COVID average and 3% below the lowest February on record.
UBS economists estimated a 10% rise in oil prices removes approximately 20 basis points from European GDP growth; month-ahead oil has risen from $60/bbl to $92/bbl year-to-date, implying a drag of around 100bps on wider GDP growth.
UBS said governments are likely to prioritize consumer relief over new investment spending, as seen in 2022-23 when the UK spent £50 billion, equivalent to 2% of GDP, on energy support. The brokerage runs its German power price forecast at €64/MWh for 2029, roughly 14% below the current forward curve, while acknowledging upside risk on trading.
Europe’s gas consumption has fallen from 540 billion cubic meters annually in 2021 to c450 BCM currently, with LNG reliance rising from 111 BCM to 186 BCM over the same period, per UBS data.