Germany’s largest electricity producer,
can see faster growth as the world is changing renewable energy sources.
That growth, in turn, could shake stocks that have risen 185% over the past five years, but are down about 6% to around 34 euros ($ 40.03) by 2021, versus the German market which is up 10%. RWE (ticker: RWE.Germany) earned a multiple of 19.4 times this year’s expected revenue and is valued at a premium of 20% to its peers.
To all this, some analysts believe the market may be underestimating the potential returns from RWE’s growing renewable energy business, particularly wind.
The company’s wind and solar farm with a market capitalization of $ 26 billion currently produces about 9.2 gigawatts, enough to power more than three million homes. Renewable energy, which includes wind, solar, hydro and biomass, now accounts for around 20% of RWE’s annual electricity output.
But wind and solar generate around 50%, or € 1.5 billion, of RWE’s adjusted core income before interest, taxes, depreciation and amortization, or Ebitda, of € 3.2 billion for 2020. The company has wind operations. second largest in the world, with 27 offshore wind farms and more than 100 land wind farm in the US, Europe and Japan.
With ambitious plans to develop offshore wind, RWE has been competing for an important seabed auction. At least in the US, wind opportunities might grow, with President Joe Biden opening up areas along the East Coast for wind farms. Deutsche analyst Olly Jeffery estimates RWE may be able to build an offshore wind farm of 1.5 gigawatts per year between 2027 and 2050, with a 33% greater return on investment than the market has built into the stock price.
“Offshore winds are a huge growth opportunity,” he wrote in a recent note. “RWE has a strong incumbent position and development path, so RWE is ready to play an important role.”
Analysts at the private German bank Metzler estimate that the stock could go up 38% to € 47.
predicts an increase of 19% to € 40 and
an 18% increase to € 39.10.
Chief Executive Rolf Martin Schmitz said in a statement that there were plans to invest € 5 billion renewable energy and storage facilities between 2020 and 2022, which will increase capacity to over 13 gigawatts. “RWE is growing – while maintaining its consistency and value,” he said.
The firm traces its history to the founding of Rheinisch-Westfälisches Elektrizitätswerk, or RWE, in 1898, which then supplied electricity to Essen, a city in Germany’s Ruhr industrial area. This was the first time the stock floated on the German stock market in 1922.
In 2018, RWE announced a complex asset swap that allowed it to take a 16.7% stake in a rival
(EOAN, Germany) —from reduced to 15% —and to buy up its renewable energy business.
The move helped diversify RWE from its dependence on carbon fuels. In February, he sought to boost his green credentials by competing in the fourth round of the UK offshore bid tender by The Crown Estate. It wins two sites capable of producing three gigawatts of power, while paying the lowest price for the highest capacity.
Louis Boujard, an analyst at brokerage Oddo BHF, wrote in a February note that the auction was encouraging because it gave credibility to the company’s competitiveness, “established RWE as a major offshore player in Europe,” and was a “good catch, well executed. “
Offshore wind capacity could reach around 1.4 terawatts by 2050 – one terawatt is 1,000 gigawatts – up from 29.1 gigawatts in 2019, and RWE is well positioned to play a major role.