EUR 850.00 For Business Accounts Only

Morningstar | RWE Maintains Full-Year Targets and Hedging Is Improving, but Risk/Reward Profile Is Unappealing

RWE released nine-month results in line with expectations and confirmed full-year targets. We reiterate our fair value estimate of EUR 17.40 per share, along with our no-moat and stable moat trend ratings. Our fair value estimate incorporates a 25% likelihood that the Hambach mine will be closed in the early 2020s, which has a negative valuation impact of EUR 1.5 per share. Shares look overvalued.

EBITDA came in at EUR 1.33 billion, down by 23% versus negative 21% in the first half. Adjusted net income came in at EUR 683 million, down by 31% versus negative 23% in the first half. Conventional power generation's profitability's EBITDA decreased by 56% to EUR 474 million, versus negative 42% in the first half, on lower achieved power prices, spreads, and volumes. This is a bit short of our EUR 733 million full-year EBITDA, involving a 33% decline. In all, our upside for conventional power generation should be offset by trading's momentum above our full-year estimate at the end of September. Accordingly, we should not change our 2018 forecasts upon this publication of EBITDA and adjusted net income of respectively EUR 1.6 billion and EUR 0.65 billion on a stand-alone basis. These are in line with full-year guidance confirmed by RWE of of EBITDA of EUR 1.4 billion-EUR 1.7 billion and adjusted net income of EUR 0.5 billion-EUR 0.8 billion.

RWE's hedging starts to reflect increasing power prices. 90% of 2019 outright generation is hedged at EUR 2/MWh versus 90% at EUR 28/MWh in the first half, in line with our EUR 28.7/MWh for 100%; 90% of 2020 generation is hedged at EUR 30/MWh, versus 90% at EUR 29/MWh previously and our EUR 29.6 MWh; 60% of 2021 generation is hedged at EUR 33/MWh versus 40% at EUR 29/MWh in the first half and our EUR 38/MWh assumption. CO2 position is financially hedged until mid-2020s versus year-end 2022 in the first half. In all, we will leave our long-term forecast unchanged upon this publication.

RWE highlights that the transaction with E.On is progressing as planned and that the delay in the merger of SSE and Npower has no material impact on the timetable envisaged.