Bank of America names three European stocks with 25-45% upside potential

Published Thu, Dec 3 20208:45 AM ESTUpdated Thu, Dec 3 202011:47 AM EST

Bank of America analysts have identified a number of stocks in Europe that they say are poised to benefit from almost $2 trillion worth of investment in coming decades. In a note Wednesday, the analysts said that utility firms' renewables divisions should be viewed as growth businesses, given the long-term investments being made due to climate goals. They expect 1.5 trillion euros worth of future capital expenditure (capex, or investment) in utility companies' renewables units through to 2050. BoA named three companies in the pan-European utilities sector that give investors, "the most compelling way to get exposure to renewables with 25-45% upside potential." "Future growth potential can no longer be ignored," the analysts added. These companies are: EDP, a Portuguese energy company, Energias de Portugal; RWE, a German energy company; and SSE, an energy company headquartered in Scotland. "Our analysis of 1.5 trillion euros (worth of) future capex reveals significant discrepancies in how growth potential is being valued by the market," BoA noted. "With pure-play renewables up (more than) 60% YTD, we believe the next tier of developers — EDP, RWE and SSE — now offer the most compelling way to get exposure to renewables with 25-45% upside potential." So far this year, share prices of EDP and RWE have risen almost 20% and 27% respectively, while SSE's share price is down 5.2% in 2020. Putting their calls into context, the analysts stressed that: "We are entering 'a new golden era for renewables' supported by global governments' 'net zero' carbon emissions policies, improving economics, cheap finance and transition to green hydrogen." Such targets have been enshrined within the 2015 Paris Agreement aimed at combating climate change. The accord has been ratified by 189 countries, although the Trump administration withdrew the U.S. from it. President-elect Joe Biden, however, is expected to bring the U.S. back up into the agreement. The U.S. is the second-biggest emitter, after China. The central aim of the agreement is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century below 2 degrees Celsius (35.6 degrees Fahrenheit) above pre-industrial levels. It also aims to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. The BoA analysts noted that "numerous forecasts now suggest that renewables capacity additions need to increase 3-4x over the next three decades to meet 'Paris Agreement' targets." They added that policy momentum had been positive over the last year, citing the EU's Green Deal targeting net zero emissions by 2050 and, "a Biden administration promising a more supportive U.S. backdrop; even China recently adopted a 2060 net zero target."

Bank of America analysts have identified a number of stocks in Europe that they say are poised to benefit from almost $2 trillion worth of investment in coming decades.

In a note Wednesday, the analysts said that utility firms' renewables divisions should be viewed as growth businesses, given the long-term investments being made due to climate goals.

They expect 1.5 trillion euros worth of future capital expenditure (capex, or investment) in utility companies' renewables units through to 2050.

BoA named three companies in the pan-European utilities sector that give investors, "the most compelling way to get exposure to renewables with 25-45% upside potential."

"Future growth potential can no longer be ignored," the analysts added.