We initiated on RWE as a cheap way into Innogy.
RWE’s valuation is highly dependent on its Innogy stake
When we initiated it accounted for over 200% of RWE’s market cap. Now it only accounts for 120%.
Recent out-performance has come from that discount reducing as people saw value and the recent bid noise around the stake.
If no bid materialises for Innogy then the relative out performance for RWE will cease.
We feel it is time to take profits and move on.
Closing +57.96% abs, +48.86% rel.
CHEAP, SELL-OFF NOT JUSTIFIED
Friday • 11th November 2016 • 16:53
For us this was a play on German power prices trading at the highs and a cheap way into Innogy. Numbers this morning from Innogy underwhelmed and recent HB article stating that RWE has already hedged wholesale power prices for the year so will not feel the benefits. This coupled with rising rates and people/machines blindly selling bond proxies has really hurt us.
The perfect storm of bad news.
For us this is a more a case of positioning and the mkt getting ahead of itself as people chase the same trades rather than anything fundamental.
See our market comments piece yesterday MARKET VIEWS.
However for us the bad news is in the price.
RWE numbers are Monday and we see RWE as significantly undervalued, post Innogy IPO and the strength in German power prices. We also feel the market is missing RWE’s significant net positive cash position post Innogy IPO. Post recent weakness an inline set of numbers will lead to a decent relief bounce and we expect numbers to beat on Monday following EOAN this week and we stick with our long and are adding to the position this afternoon.
UPDATE LONG RWE AND EOAN
POSITIVE NEWS ON NUCLEAR LIABILITY RESOLUTION
Friday • 14 October 2016 • 13:25
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
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