Tuesday 22 October 2013

Analysis of RWE

A German electricity and gas company

Company: RWE

Business: The second biggest electricity and gas company in Germany and the fifth biggest in Europe. They are producing their energy from gas, coal , nuclear and renewable. They divide themselves into five business unites: Production, Power and Heat Generation, Supply and Trading, Transmission and Distribution and finally Products and Services.

Active: In the European union.

P/E: 12.8
contrarian values of P/E, P/B, ROE as well as dividend
The P/E of RWE is pretty ok even though a little too high for me with 12.8 and the P/B is acceptable with 1.0 which gives a very clear buy according to Graham. The earnings to sales are very low with only 2% and the ROE is also low with only 8%. The book to debt is very low with its ratio of 0.2 which I do not like. In the last five years they have had a yearly growth of 4% which is not bad at all and this gives us a motivated P/E of around 13 to 17 which means that the market today is slightly undervaluing RWE. they pay an excellent dividend of almost 7.4% which on the other hand represents 94% of their earnings so I doubt they will manage to keep that up!

Conclusion: I would not buy RWE today but I understand people that buy them due to the very nice dividend. I do think that RWE has a more promising future than what it looks like right now and for that reason I will add also RWE to the stock of interest list with the next update.

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1 comment:

Fredrik von Oberhausen said...

RWE was severely punished by the market today due to two reasons:
1. Very bad result in the quarter and they also
2. recommend that only 1 € per share of dividend will be paid out which is 50% less then last year.

Many investors have bought the energy companies due to their nice dividend. E.On. were punished in spring when they made said they would only pay out 50-60% of the earnings from 2013 and RWE was now punished when they significantly drop their dividend.

Question is if it is a good moment to buy or not?