Tag Archives: RWE AG

Listed German utility companies – part 1: Overview and E.on (ISIN DE000ENAG999)

In my small series about utility companies, it might make sense to start with those companies which are at least geographically in my “circle of competence”, Germany.

There are currently 8 listed companies which qualifiy one way or the other as “utilities” which are:

Ticker Name Mkt Cap EV/EBITDA T12M P/B P/E Dvd Yld
 
EOAN GR Equity E.ON SE 28,194 7.5 0.7   7.8
RWE GR Equity RWE AG 19,099 4.7 1.2 8.3 6.3
EBK GR Equity ENBW ENERGIE BADEN-WUERTTEMB 8,340 5.6 1.4 31.0 2.7
MVV1 GR Equity MVV ENERGIE AG 1,549 8.3 1.4 25.3 3.8
FHW GR Equity FERNHEIZWERK NEUKOELLN AG 72 6.8 2.1 15.6 4.5
MNV6 GR Equity MAINOVA AG 2,031 22.9 2.2 20.8 2.5
WWG GR Equity GELSENWASSER AG 1,887 17.8 2.3 19.3 3.2
LEC GR Equity LECHWERKE AG 2,198 20.0 2.7 22.6 3.2

Obviously, the large companies look the cheapest. Most of the smaller companies are in fact subsidiaries of the large players or owned by the Government such as:

– Lechwerke is owned ~90% by RWE
– Mainova is part of EON (91.3%)
– Gelsenwasser is owned by the government (92%)
– MVV is majority owned by the city of Mannheim (50.1%)
– EnbW is majority owned by the Government (85-90%)
– Fernheizwerk Neukölln is owned by Sweidish Vattenfall (80.1%)

RWE is de facto controlled by the regional government as well, only E.On to my knowledge does not have a controlling shareholder or significant Government influence.
A
s one could read in the press, the regulatory environment in Germany is supposed to be quite ugly, among others, the major issues are:

– unpredictable politics (close down of Nuclear power plants following Fukushima), the utilities are actually trying to sue the Governemnt for this
– heavily subsidized renewable energy (costs are added to the electricity bill for retail customers)
– relative low allowed yields on infrastructure which led the major players to shed electricity grids and gas pipelines
– heavy competition for instance for electricity. I just checked, where I am living (Munich), I got ~44 different offers for electricity

Going back to the “Buffet on utilities” approach, especially suing the Government (i.e. regulator) is maybe not a ver good long-term strategy if you then want to negotiate your next investment.

Another interesting aspect in my opinion is the fact, that especially the subsidiaries with purely local (regulated) focus show quite satisfying longterm ROEs.

10Y ROE 5Y ROE Debt/Equity
FERNHEIZWERK NEUKOELLN AG 18.6% 19.6% 0.0%
LECHWERKE AG 24.5% 13.9% 0.2%
GELSENWASSER AG 17.7% 12.5% 2.1%
MAINOVA AG 17.1% 9.1% 70.3%
ENBW ENERGIE BADEN-WUERTTEMB 21.0% 12.8% 94.1%
MVV ENERGIE AG 10.3% 11.3% 107.6%
       
 
RWE AG 17.4% 15.4% 122.4%
E.ON AG 10.2% 1.8% 79.2%

I find especially Lechwerke, Fernheizwerk and Gelsenwasser fascinating. Without any leverage they manage to produce solid double-digit ROE’s over long periods of time. So looking at this one might think that both, for RWE and EON, the German regulator is maybe not the real reason for their current problems.

Rather bad management and failed international expansion are the drivers between the rather bad performance in the last few years. Eon for instance lost lot of money with gas contracts outside Germany.

This is also the major issue I have with E.on. For some reason, they believe that they must grow outside Germany, just recently they swapped German Hydro plants with Austrian Verbund against a 50% stake in a Turkish utility group. Earlier in 2012 they teamed up with Brazil’s Eike Batista to invest in Brazil. Some people might like this exposure to “growth markets”, but personally I think this is a quite risky strategy.

Again, if we look at the comparable performance between E.on and its listed German subsidiary Mainova, we can see that at least this German business performs quite well and consistent despite E.on’s claims of bad German regulation:

Some additional thoughts about E.on based on the 2011 annual report:

– Nuclear is not coming back, that was more than 1 bn of EBIT which is missing going forward
– 60% of sales are actually energy trading revenues. The results of this “sector” look quite volatile
– they show huge swings in the net results of financial derivatives. In 2010 for instance, E.on showed a net gain of 2.5 bn against a 2011 loss of -1 bn .
– E.on has around 17 bn liabilities for nuclear waste etc. This liability is hard to analyse and could be grossly over-/understated. In the notes they state that the discount rate they use is 5.2%. I think this is a rather high rate. Combined with the long duration of those liabilities, there could lurk a potential multi billion hole there as well as in the 14 bn pension liabilities
– another “whopper” are the 325 bn EUR (yes that’s three hundred twenty five billion) of outstanding fossil fuel purchase commitments. Disclosure is rather limited here but I guess this is one of the big problem areas where they have locked in Russian NatGas purchases at too high rates

On the plus side we could add:

+ maybe earnings were understated to put pressure on regulators and trade unions
+ positive effect from future reduction in interest rates

All in all, EON in the current form looks like a big black box to me. mostly due to the large trading activities which are not transparent at all. I would be not able to value the company. I also don’t think it is particularly well-managed. As there is no dominant shareholder, the major “upside catalyst” could come from an activist investor. In contrast, I think current management will most likely waste the cash flow in stupid “growth investments”.

Another issue, and that goes for most of the German utilities is the fact, that the combination of Nuclear exit and strongly subsidised local renewal energy production might have altered the business model going forward. So betting on a “reversion to the mean” might not necessarily work here, at least not in the short run.

Last but not least, I don’t see how I could have any “edge” in valueing E.on. It is a liquid large cap stock, with plenty of analyst coverage. True, sentiment is quite bad which is maybe a chance at some point in time but as a private investor with a small portfolio, this is not the first place to look for “value”.

Yes I know, for many “value investors”, a P/B of 0.77 and dividend yield of 7.6% would already be enough and maybe yield starved investors will bid up E.On stocks for the dividend, but looking 3.5 years ahead, I don’t see a real “Margin of safety” at current prices with the current management and strategy plus taking into account the fundamental issues mentioned above.

Opportunity Investment RWE – First Take

Das Timing gestern, in RWE einzusteigen war denkbar schlecht, heute hätte es die Aktien nochmal satte 10% billiger gegeben.

Mit aktuell knapp -50% hat RWE mit Abstand am meisten unter den Europäischen Versorgern abgegeben, gefolgt von EON (knapp -40%).

Schaut man sich den Halbjahresbericht an, ist das auch ein Bild des Grauens:

– Ergebnisprognose kassiert
– Zahlen unter den Erwartungen (1. Halbjahr -33% “betriebliches” Ergebnis
– Kapitalerhöhung angekündigt
– Dividendenkürzung angekündigt

Dazu kommen neben den bekannten Themen Atomausstieg und CO2 Steuer auc noch massive Probleme mit den Gaslieferverträgen aus Russland und ein Downgrade von S&P von Single A auf A- mit “negative Outlook”.

Auf Bloomberg spiegelt sich das auch in eiener sensationall schlechten Ratio von Analystenratings nieder. Von 43 Analysten raten 18 mit “Sell”, 15 mit “hold” und nur 10 mit “buy”. Der durchschnittliche Zielkurs ist allerdings immer noch bei 40,40 EUR.

Das Durchschnittsrating ist lt. Bloomberg 2.69, damit liegt RWE im in den unteren 5% des DJ sStoxx 600, immerhin noch vor Banco Popular aus Spanien, Piraeus Bank und ähnlichen “Perlen”.

Zwischenfazit: Man kann mit gutem Gewissen behaupten, dass das Sentiment bei RWE am Boden liegt. Es kann natürlich immer tiefer gehen, aber auf der “Würgfaktor” Skala für Invetsments ist das vmtl. eine 9 von 10.

Schauen wir uns mal die grundlegenden Berwertungszahlen an:

KBV 0,9
KUV 0,27
Trailing P/E (2010) 4,2
Est. P/E 8,4

Also alles schön billig, aber dann das hier:

Tangible Book: NEGATIV
Nettoverschuldung pro Aktie: 26,50 EUR, das ist mehr als der aktuelle Börsenwert.

Was in aller Welt will man also mit einer solchen “Bude” ?

Die Antwort kann eigentlich nur “Cashflow” sein. Schauen wir uns mal die für die letzten 10 Jahre ausgewiesenen operativen Cashflows und freien Cashflows an:

Op CF Free Cf
2001 8.91 -1.80
2002 10.55 3.27
2003 9.41 1.65
2004 8.76 2.67
2005 9.43 2.91
2006 12.06 4.07
2007 10.82 3.59
2008 17.32 9.05
2009 9.96 -1.13
2010 10.31 -1.65
     
Avg. 10.75 2.26

Wie man es bei einem Versorger erwarten würde, gibt es Operativen Cashflow satt, der Free Cashflow schwankt relativ stark aber ist doch auch respektabel.

Jetzt ist es interessant zusehen, was RWE mit dem Free Cash Flow macht:

Free Cf Dividende
2001 -1.80 1.4286
2002 3.27 1
2003 1.65 1.1
2004 2.67 1.25
2005 2.91 1.5
2006 4.07 1.75
2007 3.59 3.5
2008 9.05 3.15
2009 -1.13 4.5
2010 -1.65 3.5
     
avg 2.26 2.27

Die relativ genaue Übereinstimmung der Durchschnitte ist sicher Zufall, aber man sieht schon, dass RWE einen großen Teil des freien Cashflows an die Aktionäre schüttet. Die Akquisitionen werden / wurden i.d.R. mit Fremdkapital bezahlt. Die Verschuldung von RWE zeigt deshalb auch relativ eratische Sprünge:

Net debt per share
2000 -15.94
2001 2.36
2002 34.29
2003 35.55
2004 26.39
2005 27.87
2006 -0.36
2007 0.90
2008 8.00
2009 25.83
2010 26.50

Die großen Sprünge kommen aus den bekannten Transaktionen:

2009 wurde Essent (Holland) gekauft
2006 wurde Thames Water verkauft die 201 gakauft worden waren
2000 wurde VEW, Lahmeyer und andere gekauft

Insbesondere die Thames Water Akquisition war bekanntlich nicht besonders toll, aber an den Zahlen sieht man deutlich, dass ohne Akquisitionen RWE gar nicht gewusst hätte, wo sie den ganzen Cash investieren sollen.

Zwischenfazit: Historisch gesehen hat RWE ordentlich Cash generiert der auch ausgeschüttet wurde. Man kann also davon ausgehen, dass die “immateriellen Vermögensgegenstände durchaus einen gewissen Wert besitzen.

Fortsetzung folgt…