Saturday, April 28, 2018

Analysis of RWE 2018


Logo of RWE 2018


Company: RWE 

ISIN DE0007037129 | WKN 703712 

Business: A German electricity and gas company. RWE currently have three pillars that it stands on: Conventional Power Generation (production of electricity, gas and oil), Energy Trading (buying and selling of electricity, gas and oil) and finally Innogyn (subsidiary, the green energy daughter).

Active: Europe mainly.

P/E: 6.9

Here you can find the previous analysis of RWE 2017

Contrarian analysis of RWE 2018 with P/E, P/B, ROE as well as dividend.

The P/E is looking good with 6.9 as does the P/B with 1.9 which means that Graham gives the green light on this one. The earnings to sales are not impressive with 4% but it is nothing strange for the field and the ROE is excellent with 28% but I would claim that comes from the high debt leveraging. The book to debt ratio is horrible with 0.12 which is in the region of banks.
In the last five years they have seen a yearly decrease in revenue in the size of -3.8% which is very bad and this then gives us a motivated P/E of around 8 which means they are fairly valued by the market today.
They try to invest some money into R&D in the size of 10% which I find to be ok.
If passed on the shareholders meeting then they will pay out a special dividend of one extra € to the normal payment of 0.5 € which gives us dividend of 7% which is excellent and this would be 48% of their earnings so fully acceptable also in that sense. The reason for the extra dividends in the nuclear taxes that came back and that the common shares have not received a dividend for the last two years.

Conclusion: Graham says yes but I am cautious. The P/E and P/B is good, the ROE also as is the dividend this year at least. However due to the deal with E.On it is a big question mark on the horizon and I would like to see what comes out of that before it is worth to look into any further investments. I will remain as a shareholder but I will not increase my position.

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