RWE: After Outstanding Year, 2023 Guidance Already Appears Conservative

We are currently maintaining our fair value estimate of EUR 53.00 after no-moat RWE RWE prereleased very strong first-quarter results and conservatively maintained its 2023 guidance. Shares are undervalued.

First-quarter adjusted EBITDA is anticipated to jump almost fivefold to EUR 2.8 billion. Adjusted net income should land at EUR 1.67 billion versus breakeven in the year-ago quarter as a result of an impairment on Russian coal deliveries.

The main standout in the first quarter is the hydro, biomass, and gas segment with adjusted EBITDA of EUR 1.2 billion versus EUR 0.26 billion a year prior on the persistence of the tailwinds of the previous quarters--that is, mainly clean spark spreads and high earnings from short-term power plan deployment. This implies a positive read-across for Engie and SSE. Offshore wind’s EBITDA increased by 13% to EUR 0.47 billion due to the commissioning of the Kaskasi farm. Coal and nuclear’s EBITDA surged by 140% to EUR 0.5 billion thanks to higher margins from lignite power plants on higher hedged prices than in the year-ago quarter and contribution from the Emsland nuclear plant, which was shut down mid-April.

On the downside, onshore wind and solar’s EBITDA decreased by 22% to EUR 0.25 billion as lower achieved power prices more than offset the consolidation of Con Edison Clean Energy Businesses since the beginning of March.

RWE maintained its 2023 guidance of EUR 5.8 - 6.4 billion and EUR 2.2 - 2.7 billion for adjusted EBITDA and net income, respectively. This appears significantly conservative after the strong print of today. We will raise our 2023 earnings, but the impact on our long-term estimates and valuation will be limited.