Investing.com -- UBS Global Research has initiated coverage on the European cables sector, highlighting a robust growth outlook for high-voltage (HV), medium-voltage (MV), and low-voltage (LV) segments, in a note dated Thursday.
Analysts at UBS Global Research point to sustained demand for HV cables, driven by increased investments in power transmission and grid expansion, as a key factor underpinning the sector’s positive trajectory.
The high-voltage segment, which constitutes a significant portion of earnings for leading European cable manufacturers, is expected to experience continued pricing strength.
UBS analysts forecast a 14% compound annual growth rate in demand from 2022 to 2028, supported by large-scale infrastructure projects and renewable energy developments.
The analysts indicate that HV cable producers, including Prysmian (BIT:), Nexans (EPA:), and NKT, have secured substantial order backlogs, extending beyond five to eight years, compared to the average two-year backlog observed in 2019.
A critical factor in sustaining profitability within the high-voltage segment is the persistent demand-supply imbalance.
UBS estimates that excess demand will average 16% between 2027 and 2030, even after adjusting for weaker offshore wind prospects in the United States.
The study flags that cable prices grew at an annualized rate of 16% from 2019 to 2023, with project prices in 2023-2024 averaging 28% higher than those in the preceding four-year period.
Upcoming contract awards in 2025 are expected to match or exceed the 2023-2024 average of €15 billion, with the UK’s National Grid (LON:) leading the way.
The energy infrastructure operator has announced plans to procure 14,000 kilometers of HVDC cables as part of its "great grid upgrade," a project with a total capital expenditure of £60 billion.
As per UBS, Nexans is best positioned to capitalize on these opportunities, with available capacity from 2028, while Prysmian and NKT may face constraints due to existing commitments.
In the medium-voltage segment, UBS points to favorable long-term demand trends. Structural growth in grid expansion, estimated at 7% annually from 2023 to 2028, is expected to sustain profitability, particularly for Nexans and Prysmian, which generate approximately 60% of their EBITDA from MV and LV operations.
Rising capital expenditure from European grid operators, which has grown at a 24% CAGR from 2019 to 2024, further reinforces the positive outlook.
The analysts note that LV cable demand should see low-single-digit growth in 2025, supported by a 3-5% organic expansion in European construction markets.
UBS analysts assign a “buy” rating to Nexans, citing its exposure to high-voltage transmission and potential for increased return on invested capital.
Nexans is projected to see a 5-percentage-point rise in ROIC between 2023 and 2028 as its MV and LV operations bolster profitability.
The stock currently trades at its largest discount to electrification peers in a decade, with a possible re-rating anticipated in 2025 as concerns over the Great Sea Interconnect contract subside.
For NKT, UBS maintains a “sell” rating, pointing to margin pressures and a challenging ramp-up period for its Karlskrona site, which is set to open in 2027.
The report suggests that earnings growth may remain stagnant until after 2027, with 2025 guidance expected to fall 7% below consensus.
UBS also flag NKT’s valuation premium relative to Nexans, despite a slower projected EBIT growth rate through 2027.
Prysmian receives a “neutral” rating, with UBS analysts questioning whether the company can achieve €3 billion in EBITDA by 2028.
The cancellation of its US-based HV production facility is flagged as a risk factor, with potential downside to earnings estimates. Additionally, competitive pressures in the US medium- and low-voltage markets may pose a minor headwind for margins.
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