Kepler Cheuvreux has moved ERG from a "hold" recommendation to a "buy" rating and lifted its 12-month target price to €27 from €24, citing an improved policy backdrop for renewable energy operators across Europe. The brokerage says that changes at the EU level provide member states with greater fiscal flexibility to support energy transition measures, a development that underpins the upgraded stance.
The broker highlighted that the European Union agreed to permit fiscal flexibility equal to 0.3% of GDP, with a cumulative ceiling of 0.6% of GDP over the 2026-2028 period for states investing in energy security and the shift away from fossil fuels. Kepler Cheuvreux translates that allowance for Italy into roughly €6.77 billion per year, based on 2025 GDP figures provided in its note.
ERG, which trades on the Milan exchange under the ticker ERG.MI and carries a market capitalisation of €3.5 billion, was quoted at €23.26 at the time of Kepler Cheuvreux's report. That market price implies a potential upside of about 16.1% to the new €27 target.
In revising its valuation model, the brokerage said it incorporated two main effects: a reduced risk that renewable capacity could face artificial penalisation, and an assumption of higher realised power prices. Those adjustments lift expected earnings metrics, in particular EBITDA and net profit, within the broker's 2026-2028 forecasting window.
Specifically, the updated scenario increases projected EBITDA by roughly 6% on average across 2026-2028, and it boosts net profit by around 20% on average for the same period, according to the note.
Kepler Cheuvreux also included the Nulvi repowering project in its analysis. The project totals 121 megawatts - of which about 100 megawatts is additional capacity - and has received full authorisation. The brokerage notes this project was not part of ERG's then-current business plan and expects it to contribute at least 300 gigawatt-hours per year once completed.
On line-item forecasts, Kepler Cheuvreux projects adjusted earnings per share (EPS) of €1.24 in 2026, €1.18 in 2027 and €1.16 in 2028. Sales are modelled at €871 million, €912 million and €919 million in the respective years. Adjusted EBITDA is forecast at €587 million for 2026, €608 million for 2027 and €612 million for 2028.
Net financial debt is estimated at €1.94 billion for 2026, €2.06 billion for 2027 and €1.91 billion for 2028 under the brokerage's projections. Based on those earnings estimates, the stock is projected to trade at a price-to-earnings ratio of 18.8 times for 2026, rising to 19.8 times for 2027 and 20.0 times for 2028. Enterprise value to EBITDA stands at 10.1 times for 2026.
Kepler Cheuvreux also expects ERG to maintain a net dividend of €1.00 per share in each of the three years, implying a dividend yield of approximately 4.3% on the broker's metrics.
The note draws attention to a per-megawatt valuation comparison, stating: "ERG is currently trading at €1.3/1.2 million per megawatt 2027 estimate/2028 estimate, thus at a discount to the value of its historical valuation on this metric." The brokerage reiterated that it continues to view ERG as a delisting candidate.
Following the publication of the Kepler Cheuvreux note, ERG's shares rose more than 7% on Friday as investors reacted to the upgrade and the revised target price.
In addition to its view on ERG, Kepler Cheuvreux listed sector preferences. The brokerage names E.ON, EDP, Elia, Enagas, Engie and Veolia among its most preferred names, while citing CEZ, Fortum and Hidroelectrica as its least preferred.
Summary
Kepler Cheuvreux upgraded ERG to "buy" and increased its price target to €27 from €24, driven by a more supportive EU policy framework, the inclusion of an authorised repowering project and model updates that lift EBITDA and net profit forecasts for 2026-2028. The stock rose more than 7% on the announcement.