Jersey Electricity plc (LON:JEL), a UK£138.19m small-cap, is a utility company operating in an industry which has continued to cope with the rising costs and complexities of maintaining legacy systems, while less traditional challenges are emerging. Recent trends utility companies are facing include rising cybersecurity threats, increasing usage by consumers and growing number of innovative competitors. Utilities analysts are forecasting for the entire industry, a somewhat weaker growth of 2.09% in the upcoming year , and a low 9.72% growth over the next couple of years. This rate is below the growth rate of the UK stock market as a whole. Should your portfolio be overweight in the utilities sector at the moment? In this article, I’ll take you through the energy sector growth expectations, as well as evaluate whether Jersey Electricity is lagging or leading its competitors in the industry.
What’s the catalyst for Jersey Electricity’s sector growth?
Aging asset performance with increased expectations on reliability, and new entrants and disruptive technology, are just some of the few key disruption in utilities. Over the past year, the industry saw growth in the teens, though still underperforming the wider UK stock market. Jersey Electricity lags the pack with its negative growth rate of -8.18% over the past year, which indicates the company has been growing at a slower pace than its utilities peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with Jersey Electricity poised to deliver a -3.61% growth compared to the industry average growth rate of 2.09%. Since the Electric Utilities sector in GB is relatively small, I’ve included similar companies in the wider region in order to get a better idea of the growth, which is a median of profitable companies of companies such as OPG Power Ventures, SSE and . As an industry laggard, Jersey Electricity may be a cheaper stock relative to its peers.
Is Jersey Electricity and the sector relatively cheap?
The electric utilities industry is trading at a PE ratio of 12.43x, relatively similar to the rest of the UK stock market PE of 17.19x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 8.69% compared to the market’s 12.41%, potentially indicative of past headwinds. On the stock-level, Jersey Electricity is trading at a PE ratio of 12.32x, which is relatively in-line with the average utilities stock. In terms of returns, Jersey Electricity generated 6.30% in the past year, which is 2.40% below the utilities sector.
If Jersey Electricity has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is an utilities industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the utilities sector. However, before you make a decision on the stock, I suggest you look at Jersey Electricity’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has JEL’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Jersey Electricity? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.