The fall in natural gas prices in the UK and Europe has definitely given households reason to rejoice. Gas prices in Europe have been falling steadily since August 2022, reaching €76/MWh in January 2023. This is mainly due to reduced demand after a warmer winter this season.
This creates additional pressure on the energy sector, with analysts expecting further price volatility in 2023. HSBC has cut its gas price forecast by 30% for 2023, but the bank believes prices will remain higher. .
Based on this context, we have shortlisted stocks from the National Grid utility sector (GB:NG) and ESS (GB:SSE) of the UK market. Currently, these stocks have not seen any impact on their share price and remain well positioned for the future.
Let’s take a look at how these companies are positioned.
SSE is among the UK’s largest electricity grid companies and leads the way in renewable energy generation. The company has a more diverse mix of business segments, making it more resilient to changing market conditions.
In January 2023, the company issued its third-quarter business statement, indicating that it has already reached 90% of its planned production in renewable energy generation. The company also updated its adjusted EPS to 150p, from 120p on prior orientation.
Analysts view SSE as a safe stock against falling gas prices as its share price does not yet reflect its transition into the renewables business. sam arie at UBS believes that SSE has “good exposure to energy prices over the next three years.” It forecasts earnings growth of 7-10% per year for the next five years.
Arie recently reiterated its buy rating on the stock at a 1,950 pence price target.
What is the target price for SSE PLC?
In the last year, the shares have gained nearly 20%and analysts remain bullish on further upside potential.
The stock is rated a Moderate Buy on TipRanks, with five Buy recommendations. The average price target of SSE shares is 1,917.5 pence, which is up 9.2%. The price has a high forecast of 2,110p and a low forecast of 1,738p.
National Grid is a United Kingdom-based utility company engaged in the transmission and distribution of electricity. Being part of a recession-proof industry, the company enjoys consistent demand and profits.
On a long-term horizon of five years, NG shares have gained more than 75%. The company benefits from its dominant position in the market, as it controls 30.4 million residential and commercial areas in the UK. This was also clearly reflected in their financial numbers.
During the first half of the 2022-23 financial year, the company posted 45% growth in pre-tax profit of £1.5bn. This was the result of gains from electricity distribution in the UK, as well as sales to Berkeley Group Holdings. (GB:BKG).
Going forward, analysts remain optimistic about the company’s revenue as they forecast higher demand for electricity in the coming years. the company too raised his guide for the full year and now expects EPS growth of 6-8%. NG is also targeting an asset growth CAGR of 8-10% over the next three years.
Is National Grid Stock a Buy?
According to the TipRanks analyst rating consensus, stock It has a Moderate Buy rating. The stock has four buy recommendations and four hold recommendations.
The NG share price forecast is 1,104 pence, 6.4% higher than the current price level.
Going forward, heating demand will remain strong during the remaining months of cold weather in Europe. This will support gas prices, but volatility is expected to continue into 2023. Falling gas prices could affect energy company share prices, but may also create a better entry point for investors.
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