Among utilities, RWE is the winner of the radical changes in the energy markets implied by the war in Ukraine. While we do not estimate a material exposure to Russia, either on gas supply contracts (15TWh by 2023 vs 370TWh for Uniper) or on assets and commitments (no interest in Nord Stream, no industrial activities in Russia), the impact of the conflict on energy markets is a strong positive for the group.
First, the surge in commodity prices should boost the profitability of coal and nuclear plants, a point that matters, proven by FY21 preliminary figures.
Secondly, earnings from Trading activities are expected to surge in the midst of such a volatile environment.
Thirdly, there is a clear upside potential in the mid-term from any nuclear or coal plant extensions in Germany. And, at last, we expect the ’green value’ of RWE to be finally recognised by the market as the group should play a key role in the European massive future build-out towards renewable capacities.
Note that, in our view, ‘green’ now means ‘growth’ rather than ‘ESG’…
Valuation update (EPS / NAV / DCF)
EPSs are pushed by better estimates at the EBITDA level (see the DCF section), slightly offset by higher minorities (€220m in 2022 vs €200m guided) and net financial costs (€275m vs €250m guided).
The NAV improvement is driven by lower expectations on net debt from the earnings boost in both 2021 and 2022, lower provisions according to 9M statements, and a higher fundamental valuation applied to renewable activities to reflect the increasing strategical role they embody.
The surge in DCF is driven by higher EBITDA estimates: +25.7% to €4.47bn for 2022, and +12.4% to €3.63bn for 2023.
For 2022, we stand well above the group’s guidance (€3.6-4.0bn, updated on 17 February) that we consider highly conservative on Supply & Trading (EBITDA €762m vs €150-350m guided) and Coal/Nuclear segments (EBITDA €934m vs €650-750m guided).
Indeed, the Russian-Ukrainian conflict implies such a high volatility on energy markets that we expect the Trading business to be at least as profitable as it was in 2021, as well as surging commodity prices that should boost the profitability of nuclear and coal assets (current German dark spread 1m standing above €150/MWh).