BofA lifts European power price assumptions, shuffles ratings

Bank of America raised its 2027 European TTF gas-price forecast to €55/MWh from €39/MWh and its Q4 2026 forecast to €100/MWh from €73/MWh, citing disrupted Qatari LNG flows, low European storage and stronger Asian demand. The bank increased 2027 European power-price assumptions by an average €9/MWh (9%), placing its 2027 utility earnings forecasts roughly 6-9% above consensus. EDP and Endesa could see significant earnings upgrades, while SSE and RWE have 7-8% estimated upside to 2027 consensus earnings; Verbund and ERG were upgraded to Neutral on more than 15% potential consensus-EPS upside.

Analysis

The key equity variable is not the gas forecast itself—2027 TTF forwards already sit near the revised assumption—but the degree to which merchant generation realizes the higher curve before hedges roll off. RWE offers the cleanest operating leverage through generation, trading and contracted repricing, while EDP and ELE have more diluted exposure from regulated networks and geographic diversification. The likely earnings-inflection window is FY27 guidance, not the next quarter; November results matter primarily for hedge-book disclosure and management willingness to lift medium-term targets.

The non-obvious loser is European energy-intensive industry. Higher gas-driven marginal power prices pressure German chemicals, metals and industrial gas users before utilities fully recognize higher achieved prices. A long RWE/short BASF pair isolates that spread better than outright utility exposure: RWE benefits from higher realized generation margins, while BASF faces gas and electricity cost pressure plus weaker European demand elasticity. The pair should work over 1-3 months if winter-risk premia persist, but is vulnerable to a rapid easing in LNG flows or a warm-weather storage rebuild.

Consensus may be over-crediting hydro-heavy VER and renewable-focused ERG as direct gas proxies. Their upside requires sustained elevated regional spot prices and limited curtailment, whereas hydro conditions, capture-price discounts and power-price intervention can absorb much of the headline benefit. The larger asymmetric risk is political: a renewed EU or national clawback would compress utility multiples even if EBITDA estimates rise, particularly in Iberia. A sustained 2027 TTF move below €50/MWh, alongside no upward revision to achieved-price/hedging assumptions at results, would falsify the bullish earnings-upgrade thesis.

Key Decisions for Investors

• Initiate a 1-3 month long RWE / short BASF.DE pair, sized beta-neutral. Target 10-15% relative return if elevated gas and power curves persist through winter; stop if 2027 TTF falls below €50/MWh or RWE indicates materially higher hedging than expected.
• Accumulate EDP on weakness ahead of FY27 estimate revisions rather than chase a near-term analyst-driven move. Require evidence that Iberian retail repricing and merchant capture rates are improving; take profits if regulatory-clawback risk re-emerges or consensus upgrades close the expected earnings gap.
• Treat SSE as a selective hold rather than a high-conviction gas beta: UK network regulation and the higher windfall-tax burden reduce incremental merchant-price passthrough. Prefer RWE exposure for the bullish power-price view until SSE quantifies post-tax achieved-price sensitivity.
• Avoid adding to VER and ERG solely on revised gas assumptions. Upgrade to a long only if upcoming results demonstrate higher forward power hedges and management confirms that hydro/renewable capture prices are tracking regional baseload power rather than lagging it.