Bold strategic pivots can pay off...

We have analysed the long-term evolution in valuation multiples (P/E) for a sample of Utilities in our coverage, and note a strong correlation between bold strategic pivots and multiple expansion. In essence, well executed larger transactions, or material changes in capital allocation, have structurally re-rated stocks in some cases. We looked at three past examples, and also point out corporates that we believe could have the optionality to do the same over the coming few years: Enel, RWE, Naturgy and Centrica offer the ability to carry out similar moves, in our view. Iberdrola traded on a single-digit P/E in 2012-13, as the stock was pricing in a punitive domestic regulatory review; over time, the expansion in the UK and the US, alongside the divestment of businesses in Mexico, coupled with capital allocation increasingly skewed towards networks, pushed the stock to a premium vs European Utilities, and it now trades on 18-20x P/E. RWE benefited from divesting a financial asset (innog