UBS has downgraded Elia to "neutral" from "buy" and simultaneously increased its 12-month price target to €144 from €117, saying the shares have largely factored in the potential regulatory upside that investors had been awaiting. At the time of the note, shares were trading near €135.
The move follows a marked rally in Elia stock over the past year. UBS noted a roughly 120% rise in the last 12 months, including a 127% rebound from a trough in late February 2025 after the company announced a private placement and rights issue on March 7, 2025 that removed the overhang associated with a capital increase.
"We see the shares already pricing in an upside from a higher allowed return in the next regulatory period in Germany and Belgium," UBS analysts wrote, adding that, while Elia benefits from a superior growth profile driven by secular increases in capital expenditure, the shares were now fairly valued.
UBS highlighted the material contribution of Elia's German unit, 50Hertz, saying it represents approximately 65% of EBITDA over 2026-30 on the bank's estimates and accounts for roughly 70% of enterprise value.
On the regulatory front, UBS flagged timing considerations that limit immediate clarity. Germany's regulator issued a draft determination for the future transmission system operator framework on Dec. 10, with a final decision expected in Autumn 2026 and weighted average cost of capital (WACC) rates not due until the end of 2027. In Belgium, the new regulatory period begins in 2028 and UBS expects more clarity in Q2 2026.
For modelling, UBS assumed an uplift of about 100 basis points to return on equity (ROE) for the next regulatory periods in both Germany and Belgium, raising its German ROE assumption to 6.5%. The bank also stressed that full visibility on regulation is not expected before 2028.
Reflecting the higher assumed ROE, UBS raised its net income estimates by 1-3% for 2025-27 and by 7-15% for 2028-29. Earnings per share are forecast at €5.38 in 2025 and to rise to €9.37 in 2029. EBITDA is projected to expand from €1.86 billion in 2025 to €4.24 billion in 2029. UBS expects EPS to grow at an average rate of 13% per annum over 2025-30, even after incorporating an assumed 25% reduction in annual capex in Germany from 2030.
Capital expenditure requirements are a focal point of UBS's analysis. The bank notes that annual capex over 2026-28 is equivalent to approximately 50% of Elia's market capitalisation, versus about 20% for peers. This elevated capex need contributes to a weak equity free cash flow profile in UBS's forecasts, with equity free cash flow yield deeply negative across the period and reaching minus 39.5% in 2026.
Valuation indicators also informed UBS's stance. Elia is trading at roughly a 40% premium to spot regulatory asset base (RAB), above the company's long-term average of around 30%. Dividend yield is estimated at 1.5% in 2025, the lowest among regulated peers whose average dividend yield is approximately 4.5%.
Given these dynamics, UBS described the risk-reward skew as tilted to the downside by a factor of 1.4 to 1. The broker outlined an upside scenario of €190 and a downside scenario of €60.
UBS said it preferred Spanish transmission operator Redeia, which it rates "buy" with a price target of €18.9. The broker highlighted two near-term catalysts for Elia investors: full-year 2025 results due March 5 and anticipated regulatory clarity in Belgium in Q2 2026.
Key takeaways
- UBS downgraded Elia to "neutral" while raising its 12-month target to €144, noting the stock has already priced in regulatory improvements in Germany and Belgium.
- Analyst adjustments include higher ROE assumptions and raised net income and EBITDA forecasts, with EPS projected to climb to €9.37 by 2029.
- Major risks cited are elevated capex needs, a deeply negative equity free cash flow yield in the near term, and valuation stretched relative to spot RAB and peers.
Sectors impacted - electricity transmission, utilities, capital markets and infrastructure investment.
Risks and uncertainties
- Regulatory timing and outcomes - final decisions on Germany's TSO framework and WACC are not expected until Autumn 2026 and end-2027 respectively, and full visibility on regulation is not anticipated before 2028. This affects revenue assumptions for transmission operators.
- High capex intensity - projected annual capex over 2026-28 equals roughly 50% of Elia's market cap, creating funding and cash flow pressure relative to peers.
- Valuation and cash flow strain - the company's premium to spot RAB, low dividend yield and deeply negative equity free cash flow yield in UBS's forecasts may increase downside risk to the share price.