Analysis of RWE 2014

Company: RWE

Business: A German electricity and gas company. This fifth largest electricity producer in EU are using the entire mixture of gas, coal, nuclear and renewable for the production. RWE currently run five business unites: Production (lignite, gas and oil), Power Generation (the generated electricity from all the different sources), Supply & Trading (buying and selling of electricity, gas and oil), Transmission & Distribution (electricity, gas and water grids) and finally Products & Services (sales of electricity to residential and commercial customers).

Active: Europe, North Africa and Turkmenistan

P/E: -6.8 (P/E5: 12.1)

Here you can find the previous analysis of RWE.

The P/E is horrible for RWE due to losses and end up with -6.8 but the P/E5 is however at 11.0. The P/B is so, so with 1.6 and according to P/E Graham says no but according to P/E5 he would have said yes to RWE. Earnings to sales and ROE is bad due to the loss. The book to debt ratio is very low at 0.2 which is also bad. In the last six years they have had a yearly growth rate of 1.7% which is more or less inflation so nothing impressive there either and it then also gives us a motivated P/E of 9 to 12 which means that RWE according to P/E5 is currently fairly valued by the market. They pay an ok dividend even though it was cut by 50% and it is 3.3% which represents more than what they earned due to the loss so they better improve their earnings!

Conclusion: Graham says yes and I say that RWE is fairly valued according to how poorly they have grown in the last six years. I am therefore not currently interested in making any investment in RWE.

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