Energy Sector – Growing market, driven by inflation and increased demand

(Finance) – The business prospects of energy companies remain largely positive, against an energy price which has soared, due to geopolitical tensions, but above all to the increase in‘inflation, which was “unloaded” on energy sales prices, increasing the turnover and profits of the companies in the sector. A tendency so accentuated as to force the government to impose a extra profit tax of energy companies, to finance support for households and businesses for the payment of bills. But let’s see how the markets moved in 2022.

Energy raw materials

In 2022 we witnessed strong speculation on the main raw materials and on the price of electricity.

During 2022, electricity prices reached a maximum of 870 euros per megawatt hour and stabilized at an average price of almost 304 euros per megawatt hour.

In the first months of 2023, average prices fell to more acceptable values ​​at 133 euros per megawatt hour.

GME data source

The highest volatility occurred in the prices of natural gas, both the one listed in Amsterdam and the one listed on the Nymex.

The Dutch TTF natural gas it reached a maximum price of 340 euros per megawatt-hour in August 2022, to then recede to current prices seen at 47 euros per megawatt-hour.

The surge in inflation

The pandemic that just ended and the war in Ukraine caused this speculation that suddenly ignited inflation worldwide.

However, it should be remembered that the increase in inflation is not due to the sudden rise in the price of raw materials, which has already disappeared, but is mainly generated by the enormous amount of liquidity put into circulation by the Central Banks and could continue in future, regardless of the outcome of the ongoing Russian war.

Stellar balance sheets for energy companies

The macroeconomic scenario just outlined is all to the advantage of companies in the energy sector, since the procurement prices of raw materials on the market have fallen considerably, while the selling prices to the end user, and therefore revenues, could continue to grow , or consolidate on such high prices.

The main Italian energy companies closed the year 2022 with results close to the maximum of the guidance communicated to the market. Growing revenues and profits make these securities very attractive to institutional investors, also by virtue of the dividends that will be distributed and the risk level which, for now, appears to be fairly balanced.

The scenario for 2023

Forecasts for 2023 still see substantial growth in the trend of electricity and gas consumption and an increase in volatility on the raw materials market.

The shares of the Italian energy sector are still undervalued and could offer, in the short term, capital gains of more than 10%, with targeted purchases, in phases of weakness of the stock market.