Diversify your portfolio's power with this elite energy business

Telegraph

21-04-2025

Diversification has long been the watchword for the risk-conscious investor. If you're going to buy into a company, make sure it is well spread in terms of geography, assets and business mix.
Applying the idea to renewables investing is often less straightforward, with so many companies committed to a single power source, say, wind or solar.
They are generally heavily exposed to a specific country or part of the power supply chain too.
Enter Engie, the French-based energy utility that is about as diversified as they come. The group traces its origins back to the former state monopoly Gaz de France, which merged with French multinational Suez in 2008.
It changed its name from GDF Suez to Engie in 2015, in part to reflect its decision to refocus around the energy transition.
While the group still owns and operates gas-fired power stations, it has moved heavily into renewables, including solar, wind, hydropower, hydrogen and biomethane.
It builds local energy networks, including power transmission lines, as well as on-site commercial production facilities.
Operating globally from North America to the Middle East, it also maintains pumped-storage units and batteries to regulate power supply.
Oh, and it's in nuclear energy management and caters to the electricity consumption needs of businesses of all sizes.
Engie's shares, listed on the Paris arm of the Euronext exchange, sit in the portfolios of some of the world's best investors. Eight top-performing equity managers have backed the company, each of them among the top 3pc of the more than 10,000 professional investors tracked by financial publisher Citywire.
The company is AAA rated by Citywire Elite Companies based on the convictions of these managers and it is among the 79 constituents of Citywire's new Global Elite Companies index, which represents the very best ideas from around 6,000 stocks backed by the top investors it tracks.
One of these top investors is Philip Wolstencroft, portfolio manager of the Artemis SmartGARP European Equity Fund.
He reckons Engie is attractively valued at 9 times forecast earnings, with a 'healthy' dividend yield over 7pc expected over the next 12 months.
Wolstencroft says: 'The outlook for the business is also positive – it released guidance back in February that points towards a business that is benefiting from a high-class management team and has a good visibility-of-earnings profile as the quarters progress.
'This has caused the analyst community to revise up estimates for a number of items on the income statement.'
Engie shares are available through the UK's main stockbrokers, though potential buyers should be sure to fill in the forms minimising withholding taxes and check with their provider for any additional dealing charges.
It is the company's status as a regulated utility that helps to explain the valuation. It generates reliable and predictable earnings and cashflows that underpin a very generous dividend, but is not being viewed as a growth play, causing its shares to be priced at a relatively lowly multiple.
But while Engie may not be the raciest of businesses, it is growing. It is aggressively adding new power generation capacity, committing to €21bn to €24bn in capital expenditure from this year to 2027, some three-quarters of which is earmarked for spending on renewables, batteries and power networks.
It is aiming for a compound annual growth rate in earnings before interest and taxes, excluding nuclear, of 10pc between 2021 and 2027 – and in February Engie upgraded its earnings outlook for the next three years.
The group uses a measure called net recurring income group share to highlight how much of its profits can be relied on to automatically recur each year. Its aim is for the figure to be as high as €5bn in the 2027 financial year, which compares with €4.1bn last year.
It must be noted that Engie's earnings will fluctuate in line with prices, and volatility, in the energy market.
It is also likely to divert investment that would have gone to the US in the light of President Trump's freeze on funding to his predecessor's Inflation Reduction Act, which promoted green energy investment.
Still, this quality company has numerous options elsewhere as well as numerous smart-money backers.