Voss Capital: Sempra Energy ($SRE) Investment Case

In their Q1 2026 investor letter, Voss Capital introduces a new core long position in Sempra Energy ($SRE), a utilities conglomerate Voss believes has the opportunity to unlock significant value through corporate simplification. The firm argues that Sempra’s current consolidated structure—dominated by two California utilities that contribute more than half of earnings—masks the rapidly compounding intrinsic value of Oncor Electric in Texas, which Voss describes as the fastest growing and largest transmission & distribution (T&D) utility in North America. Voss notes the position carries a 9% portfolio weight across the Voss complex, consistent with its broader effort this quarter to lean into special-situation, catalyst-driven activism after a difficult stretch for the fund (the Voss Value Fund, LP returned -11.4% net in Q1 2026 versus +0.9% for the Russell 2000).

Investment Highlight: Sempra Energy ($SRE)

Business Overview and Sum-of-the-Parts

• Voss frames Sempra as a collection of three distinct asset groups whose divergent paths, in the firm’s view, are obscured by a single consolidated valuation
• Oncor (Texas): a pure-play regulated wire network operating under what Voss characterizes as a highly constructive Texas regulatory environment, entirely insulated from California politics and wildfire liabilities
• California Utilities: SDG&E (electric service to 3.6 million people and gas service to 3.3 million people in San Diego/Orange County) and SoCalGas, which Voss notes is the country’s largest “last mile” natural gas distribution utility, serving over 21.3 million people across Southern California
• Sempra Infrastructure: an extensive network of pipelines, clean energy projects across the U.S. and Mexico, and LNG export terminals, which Voss describes as highly valuable but complex in accounting and development stage—complicating the overall story

Valuation Disconnect

• Voss highlights that SRE trades at a 17.8x NTM P/E, which the firm views as in-line with lower-growth regulated peers
• According to Voss, this consolidated multiple fails to account for the dramatically divergent trajectories of Sempra’s underlying assets

The Oncor Growth Engine

• Voss emphasizes Oncor’s secular tailwinds from Permian Basin electrification, population growth in D/FW and central Texas, and a major state transmission infrastructure upgrade
• The firm notes Oncor’s rate base of roughly $31.5 billion, with plans to deploy $47.5 billion of capital over five years, growing rate base to $69 billion by year-end 2030—what Voss calls nation-leading ~17% annual rate base growth
• Voss points to an additional ~$10 billion of upside capital not yet included in the base plan
• The firm stresses that over 70% of Oncor’s five-year capital plan is allocated to transmission projects growing at a ~22% CAGR, which Voss notes is faster than six of the seven ‘Mag-7’ stocks and only slightly trailing NVDA—but, in the firm’s words, without the cyclicality or LLM-demand dependency
• Voss believes these largely pre-approved transmission projects carry high visibility and low cancellation risk, and are not dependent on data center build-outs

California Utilities and Wildfire Reform

• Voss argues Sempra’s California utilities carry substantially lower wildfire risk than peers EIX and PCG, because SoCalGas is a gas-only business not at risk of igniting fires and SDG&E has over 60% of its electric distribution system undergrounded
• The firm notes SDG&E has avoided a catastrophic wildfire for nearly two decades and believes a standalone California utility would trade at a meaningful premium to EIX/PCG
• Voss points to favorable reform via September 2025’s SB 254, which extended the California Wildfire Fund, split contributions 50/50 between utilities and ratepayers, and strengthened liability caps at 20% of equity rate base
• The firm expects a more equitable long-term solution for absorbing wildfire losses, reasoning that punitive treatment of investor-owned utilities ultimately raises rates for Californians

The Catalyst: Spin-Off and Simplification

• Voss believes Sempra can execute a tax-free spin-off of its 80.3% economic interest in Oncor, creating a “SpinCo” the firm expects would become the premier pure-play public transmission utility and a “RemainCo” California vehicle attractive to value investors
• The firm highlights the already-announced sale of a 45% stake in Sempra Infrastructure Partners to KKR and CPP Investment Board for $10.0 billion cash, implying 13.8x EBITDA and a $31.7 billion EV
• Voss notes the proceeds arrive in tranches ($4.7B in Q3 2026, $4.1B in Q4 2027, $1.2B in 2033) and can be used to de-lever the parent and self-fund Oncor’s capital needs without issuing equity
• According to Voss, Sempra can sell its remaining ~25% infrastructure stake as early as January 2029, aligning with a potential late-2028 corporate restructuring

Valuation and Upside

• Voss estimates that by year-end 2028, applying a 30x forward P/E to Oncor implies $78 billion of equity, with Sempra’s stake worth $62.5 billion—which the firm notes equates to just 1.9x EV/Rate Base, a discount to recent transaction comps in slower-growing peers
• The firm adds another ~$26 billion of value for the California utilities at 16.0x earnings (where fire-exposed peers traded 18 months ago)
• Voss arrives at a combined value of $141/share, representing +53% upside from the current price and an estimated 17% IRR through end of 2028

Voss Capital views Sempra as a value-oriented special situation where a constructive, pre-approved Oncor capital plan and a clear path to corporate simplification create what the firm describes as a compelling, catalyst-rich opportunity. The firm believes a tax-free Oncor spin-off would re-rate the highest-growth transmission asset in the country while leaving a stable California dividend vehicle positioned to benefit from improving wildfire legislation—an outcome Voss expects to deliver meaningful upside with limited dependence on the AI-driven demand themes dominating the broader market.

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