Best Dax returns fired by old-school coal burners
Investors jumped at the chance to buy into Germany’s landmark shift into renewable energy in 2016. Now they are getting a lesson that fossil-fuel utilities still have plenty to give.
RWE, Europe’s biggest coal plant operator and greenhousegas polluter, is the largest gainer on the nation’s Dax index after jumping 49% in 2017. The advance is almost six times that of its clean-energy subsidiary Innogy. Another company for which coal and gas are its most important fuels, Uniper, has climbed at more than double the pace of its former parent EON.
A rebound in power prices from decade lows, climbing coal-plant profitability and the need for stable supplies as Germany exits nuclear power have focused investor attention on conventional generators. While solar and wind take a growing share of Germany’s power generation, coal still makes up 40% of its energy mix.
“Old economy utilities RWE and Uniper were extremely undervalued,” said Herbert Perus, head of equities at Raiffeisen Kapitalanlage in Vienna. “Last year, prospects looked poor. Now commodity prices are in recovery mode.”
RWE rose 0.3% to €17.58 in Frankfurt. Uniper climbed 1.5% to a record €16.80.
Essen-based RWE has 14 buy recommendations from 30 analysts tracking the utility, with only three saying investors should sell. Uniper has nine analysts calling the stock a buy, two say sell and 13 say it is a hold.
RWE, Uniper, Innogy and EON all declined to comment on their share price performance.
RWE and Uniper have benefited most from 2016’s utility market overhaul, a response to Chancellor Angela Merkel’s transition to an economy built on green energy. RWE listed Innogy, its grid, renewables and retail arm, in October in Europe’s largest initial public offering since 2011. Uniper started trading in September after being spun off from EON.
German wholesale electricity prices have rebounded 50% from 2016’s lows. RWE and Uniper are more exposed to commodity markets than EON and Innogy, which get most of their earnings from regulated businesses such as grids and retail markets.