Keeping in mind the market’s tantrum in the first half of the year, you don’t want to have all of your investment eggs in one basket. Hence, it could be a good time to look beyond the shores for those looking to diversify their portfolios in hopes of a more significant upside for foreign stocks going forward.
Below, I have put together three fundamentally sound foreign utility stocks, namely, Centrica plc (CPYYY), Engie Brasil Energia S.A. (EGIEY), and Enel Chile S.A. (ENIC), which seem relatively stable and could help secure solid returns.
J.P. Morgan Global Research predicts modest economic growth in 2023, citing factors such as tightening financial conditions, COVID policies in China, and Europe’s natural gas issues. While the global recession is not imminent, J.P. Morgan Research factors in the possibility of a U.S. recession by the end of 2023 due to the steep decline in inflation and its impact on growth.
In such a scenario, diversification could be the key for investors to navigate market volatility and mitigate losses. One strategy worth considering is investing in international equities, which provide exposure to thriving economies beyond the United States. By diversifying geographically, investors can reduce risk and maximize potential returns by tapping into a broader range of opportunities.
Moreover, despite these short-term obstacles, Fidelity research indicates that over the next two decades, international stocks have the potential to outperform U.S. stocks.
In addition, the pursuit of strategic energy transition objectives is attracting substantial investment capital into the energy, utilities, and resources sectors as companies seek to transform their business models due to decarbonization, digitalization, and geopolitical uncertainties. The global utilities market is expected to expand at a CAGR of 6.8%, reaching $8.31 trillion in 2027.
Therefore, investors could consider to bank on utility stocks that are fundamentally strong and stable, such as CPYYY, EGIEY, and ENIC, to garner healthy returns. Let’s look at the featured stocks to evaluate their fundamentals.
Centrica plc (CPYYY)
Based in Windsor, the United Kingdom, CPYYY is an energy services and solutions company that operates through British Gas Services & Solutions; British Gas Energy; Centrica Business Solutions; Bord Gáis Energy; Energy Marketing & Trading; and Upstream segments. It serves residential, commercial, and industrial customers, small businesses, and offers energy-related services, and generates power from nuclear assets.
On July 11, CPYYY signed a long-term Sale and Purchase Agreement with Delfin Midstream Inc. for 1.0 million tonnes per annum of Liquefied Natural Gas (LNG) for 15 years.
This deal is worth $8 billion and could provide enough energy to heat 5% of homes in the United Kingdom. This is part of CPYYY’s efforts to build further resilience in the country’s energy security and might reduce the risk of energy shortages.
In the same month, through further engineering work and investment, the company announced that they had doubled the storage capacity at UK’s largest gas storage facility, Rough.
The facility can now store up to 54 billion cubic feet of gas for homes, which is equivalent to heating 2.4 million homes over the winter. This move should boost the country’s resilience for the coming winter and help to ensure energy security.
CPYYY’s Chief Executive, Chris O’Shea, said, “We stand ready to invest £2 billion to repurpose the Rough field into the world’s biggest methane and hydrogen storage facility, bolstering the UK’s energy security, delivering a net zero electricity system by 2035 and decarbonizing the UK’s industrial clusters by 2040.”
On June 30, CPYYY revealed that its Business Solutions segment had secured the development rights to a 65MW two-hour battery storage plant in Perthshire, Scotland, marking the largest battery storage acquisition.
Once connected to the grid in 2028, the battery will be able to store enough electricity to power 130,000 homes for an hour. This project is expected to help improve energy security and maximize the potential of offshore wind farms in the North Sea.
In terms of forward EV/Sales, CPYYY is trading at 0.19x, 94.9% lower than the industry average of 3.71x. Likewise, its forward EV/EBITDA and EV/EBIT multiples of 2.07 and 2.63 are 81.9% and 85.9% lower than the industry averages of 11.46x and 18.70x, respectively.
For the fiscal year 2022 (ended December 31), CPYYY’s group revenue increased 61% year-over-year to £23.74 billion ($30.55 billion). Its gross profit grew 25.5% from the year-ago value to £2.05 billion ($2.63 billion).
The company’s adjusted operating profit improved 248.9% year-over-year to £3.31 billion ($4.26 billion), while its adjusted EBITDA increased 115.8% from the same period last year to £3.99 billion ($5.14 billion).
In addition, its adjusted earnings attributable to shareholders came in at £2.05 billion ($2.64 billion), representing a 115.8% year-over-year increase. Also, its adjusted EPS stood at 34.9p, up significantly year-over-year.
The consensus revenue estimate of $42.73 billion for the current year (ending December 2023) represents a 5.9% increase year-over-year. Its revenue and EBITDA have grown at CAGRs of 22.3% and 36.2%, respectively, over the past three years. Also, its EBIT has improved at a 47.7% CAGR over the same period.
The stock has gained 102.9% over the past nine months to close the last trading session at $6.47. Also, it has a 24-month beta of 0.51, indicating comparative stability than the broader market.
CPYYY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and a B for Value, Stability, and Sentiment. Out of 54 stocks in the B-rated Utilities - Foreign industry, it is ranked first. Click here to see the other ratings of CPYYY for Momentum and Quality.
Engie Brasil Energia S.A. (EGIEY)
Headquartered in Florianópolis, Brazil, EGIEY is engaged in generating and commercializing electrical energy. It installs and operates plants fired from conventional energy sources, such as hydroelectric, thermoelectric, complementary units, small hydroelectric plants, and wind, biomass, and photovoltaic plants.
On July 3, EGIEY strengthened its power transmission activity in Brazil by winning a new concession to construct and operate 1 000 km of transmission lines in the States of Bahia, Minas Gerais, and Espírito Santo, meeting the demand for the flow of energy generated by renewable sources in the Northeast Region to the Southeast region.
Commenting on this, Cécile Prévieu, EGIEY’s Executive Vice President in charge of Networks activities, said, “While contributing to the security of supply and resilience of the country’s energy system, this project will also enable better integration of renewable energies, thereby helping to accelerate the energy transition.”
On June 20, EGIEY and Meridiam signed a Sales and Purchase Agreement with ACTIS to acquire BTE Renewables, one of Africa’s leading renewable energy companies in South Africa and Kenya.
Under this agreement, the company receives an additional 340 MW of renewable energy capacity and a portfolio of more than 3 GW of advanced development projects in South Africa.
Further, this acquisition enhances EGIEY’s strong project pipeline and strengthens its presence in South Africa.
In terms of forward EV/EBITDA and EV/EBIT, EGIEY is trading at 7.47x and 9.02x, 34.8% and 51.7% lower than the industry averages of 11.46x and 18.70x, respectively.
For the fiscal first quarter that ended March 31, 2023, EGIEY’s net revenue increased 14.1% year-over-year to €29.20 billion ($32.52 billion), while its EBITDA rose 17.4% from the year-ago value to €5.40 billion ($6.01 billion). During the same period, the company’s EBIT grew 19.4% from the prior-year quarter to €4.22 billion ($4.69 billion).
Analysts expect EGIEY’s revenue for the current quarter (ending September 2023) to increase 3.1% year-over-year to $550.20 million. It is expected to reach $2.30 billion, registering a marginal increase from the prior-year period. Moreover, it topped the consensus revenue estimates in three of the trailing four quarters.
Over the past three years, EGIEY’s net income and EBITDA have grown at 8.7% and 7.4% CAGRs, respectively. Moreover, its EPS has increased at an 8.7% CAGR over the same period.
EGIEY has gained 29.8% over the past nine months to close the last trading session at $9.27. Also, it has gained 31.4% year-to-date. Additionally, the company has a five-year beta of 0.46.
It is no surprise that EGIEY has an overall rating of B, equating to Buy in our proprietary rating system. It also has a B grade for Stability, Sentiment, and Quality. In the same industry, it is ranked #7 of 54 stocks.
In addition to the POWR Ratings we’ve stated above, we also have EGIEY’s ratings for Growth, Value, and Momentum. Get all EGIEY ratings here.
Enel Chile S.A. (ENIC)
ENIC is a Chile-based electricity utility company engaged in generating, transmitting, and distributing electricity businesses. It generates electricity through various sources, such as hydroelectric, thermal, wind, solar, and geothermal power plants. The company’s operating segments include Generation; and Distribution and Networks.
On July 12, ENIC signed an agreement with the international renewable energy company Sonnedix to sell its subsidiary Arcadia Generación Solar S.A. The deal involves a photovoltaic asset portfolio of approximately 416 MW for a total consideration of $550 million.
The transaction aligns with the company’s strategic plan, as it contributes to creating value by diversifying and optimizing its capital and portfolio.
In terms of forward EV/Sales, ENIC is trading at 1.79x, 51.6% lower than the industry average of 3.71x. Also, its forward EV/EBIT and Price/Sales multiples of 10.93 and 1.01 are 41.6% and 51.1% lower compared to the industry averages of 18.70x and 2.07x, respectively.
ENIC’s revenue increased 31% year-over-year to CH$1.17 trillion ($1.36 trillion) for the fiscal first quarter (ended March 31, 2023). The company’s gross operating income (EBITDA) improved by 68.1% from the year-ago value to CH$278.24 billion ($322.90 billion).
Its EBIT amounted to CH$215.63 billion ($250.24 billion), representing an increase of 108.5% from the same period last year. Also, its net income and EPS increased 134.6% and 132.8% year-over-year to CH$153.79 billion ($178.47 billion) and CH$2.03, respectively.
ENIC’s net income improved at a CAGR of 90.5% over the past three years. Likewise, its revenue and EBIT grew at CAGRs of 21.4% and 15.5%, respectively, over the same period.
Street expects ENIC’s revenue to increase 11% year-over-year to $1.22 billion in the fiscal second quarter (ended June 30, 2023) and is expected to reach $5.09 billion in the fiscal year 2023. Moreover, it surpassed the revenue estimates in each of the trailing four quarters, which is excellent.
Shares of ENIC have surged 161.1% over the past nine months and 213.3% over the past year to close the last trading session at $3.61. It has a five-year beta of 0.71.
ENIC’s POWR Ratings reflect solid prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, and Sentiment. Within the same B-rated industry, it is ranked #2. To see the other ratings of ENIC for Momentum and Quality, click here.
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CPYYY shares were trading at $6.54 per share on Friday afternoon, up $0.07 (+1.08%). Year-to-date, CPYYY has gained 45.68%, versus a 19.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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