CLOSING LONG EOAN
Was a play on the German energy prices surging following coal and carbon prices.
The positive news on the Nuclear Liability resolution on October 14th (approved by the Cabinet on October 19) also helped the trade.
We have been a touch greedy on this trade knowing the risks associated with it as we believe an upcoming rights issue is inevitable and have been too slow to take profits.
However we close for +5.01%.
We continue to run RWE believing them to be the quality name and the upside from the Innogy spin off still not encapsulated in the share price.
RWE is the cheap way into Innogy with its 5% dividend yield for a German (60% regulated) infrastructure company with bunds around 0%.
UPDATE LONG RWE AND EOAN
POSITIVE NEWS ON NUCLEAR LIABILITY RESOLUTION
Wednesday • 28 September 2016 • 17:07
Reuters reported that German government put out a draft law (expected to be approved on October 19th – next Wednesday) in which it states that nuclear operators will transfer 23.5B EUR for the nuclear fuel liabilities.
This is a positive read for our LONGS in RWE and EON as this equates to 1.5B EUR less then speculated in the press previously. This would imply 400M EUR and 500M EUR less for RWE and EON respectively.
After almost 1.5 years of uncertainty, we see any resolution as good news and even more so in this case when the amount is less then speculated.
We are -4.5% on RWE and +9.9% on EON and happy to stay long for the upside as the nuclear fuel liabilities overhang is removed and the names play catch up to German energy prices and the value still unlocked within them.
EOAN and RWE
TRADING BUYS
Wednesday • 28 September 2016 • 17:07
German power prices racing to the highs here following coal and carbon prices. EON has been an absolute dog since the spin off 5x leverage bites and the market is waiting for a rights issue. That is the risky one, but worth a punt at these levels.
RWE is more leveraged to power prices and is also IPO’ing INNOGY, which was covered through the range with a ~20bn EUR market cap. That means allocations are likely to be thin and RWE retains a 90% stake for now. So that is the cheapest way to gain access. Even with a hefty conglomerate discount that market cap means RWE should trade a lot higher.
BOTH ARE TRADING BUYS HERE
