Despite geopolitical turbulence, Germany's equity risk pricing remains low, with industry multiples impacted by forecasted EBITDA gains not yet reflected in EVs. US firms outperform CDAX due to stronger profitability outlooks, while European M&A prices in Healthcare and Transport & Logistics exceed trading levels.

We examine the effects of external shocks on Renewable Energy stock prices in Europe and explore factors driving the decline in equity risk pricing in Germany. Additionally, we analyze sectors with the highest value growth in Germany, compare US and German sector pricing levels, and assess industry-specific M&A premia in Europe.

The German market risk premium (MRP), which had declined since September 2022 due to higher risk-free rates, is now rising again amid stronger market returns, placing it in the mid-range of the FAUB range. Meanwhile, market volatility (VDAX-NEW) has remained stable over the past six months after recovering from its March 2020 peak.

A&M’s Germany Valuation Insights highlights that despite a continued decline in equity risk premiums amid rising interest rates, recovered asset prices have driven higher EV/EBITDA multiples across most industries, while sales outlooks remain subdued and EBITDA margins largely stable. Notably, Healthcare and Telecommunication lagged in EV growth, and prior optimism in Energy & Materials and Transportation & Logistics has sharply declined since 2022.

A&M’s Germany Valuation Insights analyses pricing dynamics and the associated impact on asset values.

After the recent surge in bank stocks, the collapse of SVB sent shockwaves through the market.

A&M’s Germany Valuation Insights shows that equity risk pricing in Germany remains high but has fallen from its Q3 2022 peak, while enterprise values across most industries hit a 10-year low due to sharp asset price declines despite relatively stable earnings. M&A premia were highest in IT and Chemicals & Pharma across Europe.

European banks’ expected returns have surged to a 10-year high as equity prices dropped, pushing the implied cost of equity to 14.8% (17.4% for German banks) while price-to-book ratios remain depressed at 0.76x (0.32x for German banks). This reflects a widening gap between market valuations and forecasted ROE, despite banks outperforming broader equity markets in Q3.

A&M’s Germany Valuation Insights highlights that equity risk pricing is approaching record highs amid volatile asset prices, while all industries currently trade at a forward pricing discount compared to last year. Additionally, European M&A premia were highest in IT and Healthcare over the past year.

The cost of taking equity risk in Germany continues to rise, driven largely by heightened market volatility and investor uncertainty amid geopolitical tensions. Despite recent declines linked to the Ukraine crisis, stock prices remain above pre-COVID levels, and the German market risk premium reflects increased risk perception and timing lags in analyst forecasts.

The German market risk premium (MRP) has started to rise again, signaling that investors are demanding higher compensation for equity risk. This trend reflects a shift in risk perception despite prior recovery in asset prices and earnings levels.

The German market risk premium (MRP) for CDAX has fallen back to its pre-Covid level, indicating a normalization of investor risk appetite after the record highs of June 2020. However, high market volatility and limitations in data and forecasts mean MRP estimates should be applied cautiously in valuations.