RWE Earnings: Raises 2023 Guidance Materially; Shares Cheap
We maintain our EUR 53 fair value estimate after no-moat RWE RWE had to release its first-half results earlier than expected because they largely exceeded company-compiled consensus expectations, as obliged by German stock exchange regulations in this case. This has happened for the third quarter in a row. On the back of this very strong print, the firm materially raised 2023 guidance. RWE is the fourth-largest renewables firm in the U.S. and second-largest offshore wind firm. On the other hand, its combined-cycle gas turbines and trading arm highly benefit from volatile commodity prices and growing intermittency of the power generation system due to the rise in renewables output. Despite this competitive business mix, shares are materially undervalued.
First-half EBITDA jumped 59% to EUR 4.54 billion year on year, 7% above the consensus polled by the firm. In the second quarter, EBITDA grew 25% year on year. Adjusted net income jumped 68%, landing 15% above consensus.
In line with the first quarter, the main growth driver was the hydro, biomass, and gas segment. Its first-half EBITDA surged 157% to EUR 1.9 billion due to high earnings from the short-term power plan deployment to offset a shortfall in renewables power and high clean spark spreads. The other main growth driver was the supply and trading arm. Its EBITDA doubled in the second quarter (when excluding the impairment related to sanctions on coal deliveries from Russia in the year-ago quarter), beating consensus expectations.
RWE raised 2023 guidance by 21% to EUR 7.1 billion-EUR 7.7 billion for adjusted EBITDA and by 45% to EUR 3.3 billion-EUR 3.8 billion for adjusted net income, 28% above consensus’ EUR 2.8 billion and 71% above our EUR 2.1 billion. The guidance raise is driven by both the hydro, biomass, and gas, and supply and trading businesses. Adjusting our 2023 estimates will have a limited impact on our long-term estimates, based on our EUR 60 per MWh midcycle power price assumption.
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