Study points to an opportunity to align equity narratives more closely with international valuation expectations
The utilities sector globally remains a cornerstone of defensive investing, valued for its stable cash flows and predictable returns.
As Gulf Cooperation Council (GCC) markets mature and attract a broader investor base, understanding the valuation drivers that influence market perceptions becomes increasingly critical.
An analysis of GCC-listed utilities alongside European peers and segmented into integrated or diversified, regulated, generation companies (GenCos) and renewables pure-plays offers insights into the financial metrics that are most significant to investors and analysts. It also offers a clearer understanding of sector valuation practices.
Dominant valuation approaches
The study reviews 38 utilities – six from the GCC and 32 from Europe –based on recent equity research from leading regional and global investment banks.
Across the full set of peers, certain valuation approaches clearly dominate. Price-to-earnings (P/E) multiples were referenced most frequently, appearing in 30 instances across the analysis and underscoring the central role that earnings generation plays in assessing utilities’ value. Closely following were enterprise value to EBITDA (EV/EBITDA) multiples, mentioned 28 times, reflecting a continued investor preference for profitability and cash flow proxies that are less sensitive to accounting differences. Dividend yield also emerged as a key valuation driver, cited 28 times and highlighting the importance investors place on income generation and stability – particularly in traditionally defensive sectors like utilities.
As GCC markets mature, understanding the valuation drivers that influence market perceptions becomes increasingly critical.
Free cash flow (FCF) yield was mentioned in 21 instances, indicating a strong secondary focus on financial sustainability and the ability to fund operations and distributions internally. More fundamental valuation approaches, such as discounted cash flow (DCF) and sum-of-the-parts (SOTP) models, were also relatively prominent, appearing in 15 and 17 mentions respectively. These models are especially relevant for companies with diversified operations or significant long-term projects.
In contrast, metrics tied to the regulatory asset base, such as EV/RAB and RAV/RCV premium/discounts, were far less frequently used, cited only seven and three times respectively, showing that while they remain important in certain regulated contexts, they are not the primary lens through which the sector is generally valued.
Revenue-based metrics such as EV/sales were almost absent, cited in only two cases, emphasizing that absolute revenue scale is not seen as a key driver of value in the utilities space.
Regional nuance
Among GCC-listed utilities specifically, the findings reveal a strong alignment with global valuation trends, but with regional nuances. Dividend yield was the most commonly referenced metric, mentioned four times and underscoring the critical role of dividend income in the investment appeal of regional utilities. Both P/E and EV/EBITDA multiples followed closely, each getting three mentions and reinforcing the importance of profitability benchmarks in valuation discussions.
Other metrics such as free cash flow yield, return on capital and price to book value appeared less frequently – each cited just twice – suggesting that while operational efficiency and balance-sheet strength are noted, they are secondary to dividend and earnings considerations. DCF and SOTP models were similarly mentioned twice each, reflecting occasional use in the regional context, but not a primary valuation methodology.
Notably, there were no mentions of EV/RAB or RAV/RCV metrics, consistent with the limited regulatory asset-based valuation frameworks present in the GCC markets. EV/sales was also not referenced at all.
Income generation and profitability – and a European comparison
Overall, GCC utility valuations appear driven mainly by income generation and profitability multiples, with less reliance on cash flow models or regulatory based approaches compared to some European peers.
For integrated or diversified utilities in Europe, P/E was the leading valuation metric with nine mentions, followed closely by dividend yield, EV/EBITDA and cash flow yield, all referenced eight times in a demonstration of a strong investor emphasis on financial durability across multiple operating segments.
SOTP valuations appeared seven times, consistent with the structural complexity of diversified business models, while DCF models and regulatory asset valuations, such as EV/RAB, were used less frequently, at four mentions.
Among regulated utilities, dividend yield and P/E were equally dominant, each with seven mentions, reflecting the sector’s traditional positioning as a source of stable, regulated returns. EV/EBITDA was also cited six times, underscoring continued profitability focus. Regulatory metrics like EV/RAB and RAV/RCV each appeared three times, signaling that while regulatory frameworks are important, they are not the sole valuation driver.
GenCos showed a slightly different profile, where P/E multiples led with five mentions, followed by EV/EBITDA at four mentions. Dividend yield and DCF were each cited three times, suggesting a balanced focus between earnings generation, income distribution and fundamental valuation. Regulatory and revenue-based metrics were not referenced, reflecting the market-driven and less-regulated nature of generation businesses.
For renewables pure-plays, EV/EBITDA emerged as the most-cited metric with seven mentions, followed by dividend yield, P/E and DCF, each mentioned six times. Free cash flow yield was referenced five times, reflecting investor focus on project-level cash generation and long-term asset monetization.
EV/sales was cited twice, a slight departure from other sectors but consistent with the high-growth nature of renewable energy firms, while regulatory metrics were not mentioned, aligning with the typically market-based frameworks governing renewable businesses.
What are the implications for GCC-listed utilities’ valuation narratives?
The findings underline that profitability multiples, dividend sustainability and financial resilience are the principal areas of investor focus across the utilities sector globally. For GCC utilities, these insights present an opportunity to align equity narratives more closely with international valuation expectations.
Clear benchmarking against the most relevant European peer groups, based on operational and regulatory similarities, can significantly strengthen valuation discussions. Highlighting sustainable dividend policies, visibility on earnings growth and operational efficiency will continue to be critical elements. In addition, while these factors appear secondary today, greater emphasis on free cash flow generation, capital allocation efficiency and selective use of fundamental valuation methods such as DCF or SOTP could potentially broaden appeal to a wider institutional investor base.
For GCC-listed utilities, closer alignment with widely applied valuation drivers could strengthen their positioning in the eyes of a broader investor base
Maintaining clarity around core value drivers and demonstrating resilience through cash flow visibility appears important for supporting the competitive positioning of GCC utilities within an increasingly globalized capital markets environment.
The valuation approaches observed across utilities companies in the GCC and Europe point to a broadly consistent focus on earnings strength, dividend stability and cash flow generation. These fundamentals continue to anchor investor sentiment across different business models and regulatory environments. For GCC-listed utilities, closer alignment with these widely applied valuation drivers – combined with selective deepening of financial narratives around cash flow robustness and disciplined capital deployment – could strengthen their positioning in the eyes of a broader investor base.
As global capital markets evolve and investor expectations become more standardized, there may be opportunities for GCC utilities to further refine how they present their value propositions. Observing and adapting to these valuation dynamics could help companies not only meet but shape emerging investor preferences over time.
Talal Almoallem is senior director, FTI Consulting, Dubai
