The subprime crisis has made more conservative investments more attractive, leading CreditSights to raise its rating of the European utilities industry to “Overweight.”
In CreditSights’ view, the crisis in subprime is going to make investors more suspicious of illiquid, esoteric financial structures, and most probably lead to increased investment in simple, cash-backed, “assets you can kick”. “Against a backdrop of investor caution, generally tight credit conditions and recession based fears we believe industries with strong cash generation backed by real assets will come to the fore - industries like utilities.”
There is a saying in England that a good investment is as “safe as houses”, but with the subprime crisis and tightening credit market conditions, some things, like Euro utilities, are a lot safer than houses.
Of course there are still risks, CreditSights notes, probably the most worrying being political interference in the energy sector (both at the local and European level) and the continued prospect of significant further supply coming to the market. But the market position, economic importance and strong cash flow generation of these companies puts them on a very firm footing....MORE