3rd UPDATE: RWE Sees Stable '09 Pfts, Upgrades Mid-Term Outlook
27 February 2009 - 2:13AM
Dow Jones News
RWE AG (RWE.XE) Thursday raised its medium-term earnings outlook
brushing off concerns about falling energy demand in the recession
and said it expects stable earnings in 2009 on the same day it
reported a 4.1% drop in 2008 net profit.
Through 2012, Essen-based RWE now expects operating profit to
rise between 5% to 10% on average per year while recurrent net
profit is expected to increase 10% per year on average in the same
period.
Germany's largest power producer by output had previously
targeted operating profit to rise 5% on average per year and
increases of 5% to 10% for recurrent net profit.
RWE, however, said the new medium-term earnings targets are
dependent on the recession not having a "long-lasting negative
impact on wholesale electricity prices."
"In view of the substantial fluctuations in wholesale
electricity prices, the company is basing its forecast on the
expectations of an average realized German electricity price of at
least EUR60 per megawatt-hour during this period," RWE said.
Analysts welcomed the company's raised medium-term profit
targets, but some questioned the company's power price assumption
in light of the current price situation.
"We appreciate RWE's effort to instil confidence by raising
guidance but with forward 2012 power prices at 48.80/MWh versus its
assumption of 60/MWh this per se will not have a great impact on
the share price we believe," said Citigroup analyst Alberto Ponti,
who rates RWE as buy.
RWE Chief Executive Juergen Grossmann, however, said the company
expects power prices will rise from the current low levels.
He added that the fundamental factors that have driven energy
prices in the past few years will quickly gain importance
again.
The factors include growth of the global population, increasing
competition for fewer energy sources as well as inadequate
investment in upstream oil and gas and the construction of new
power plants, which will result in increasingly tight supply.
At 1426 GMT RWE shares traded down EUR0.86, or 1.6% lower, at
EUR51.77 in a broadly higher market.
RWE also said its previously announced cost cutting and
efficiency improvement program over EUR1.2 billion through 2012
will help achieve the targeted earnings increases.
In 2009 the company expects the measures will contribute around
EUR450 million in earnings.
The planned EUR8.24 billion takeover of Dutch utility Essent NV
that was announced last month isn't yet reflected in the new
medium-term targets, RWE added.
Germany's second-largest utility by market value behind E.ON AG
(EOAN.XE) also said it still intends to invest an average of around
EUR6.5 billion per year between 2008 through 2012, amounting to
more than EUR30 billion.
RWE said net profit in the year ended Dec. 31 fell to EUR2.56
billion from EUR2.67 billion a year ago, just missing the EUR2.64
billion average estimate of 17 analysts polled by Dow Jones
Newswires.
Excluding non-recurrent items, including EUR600 million
impairment charge related to the initial public offering of RWE's
U.S.-based water unit American Water Works Co (AWK) in early 2008,
net profit rose 12.8% to EUR3.37 billion - more or less in line
with the EUR3.44 billion analysts had forecast.
The company didn't immediately publish fourth-quarter figures,
but a Dow Jones Newswires calculation showed that net profit in the
three months to Dec. 31 swung to a net profit of EUR347 million
compared with a loss of EUR167 million in the same period last
year.
Sales rose more than 15% - driven mainly by higher average power
prices than a year earlier - to EUR48.95 billion from EUR42.51
billion, while analysts forecast EUR47.29 billion.
Company Web site: www.rwe.com
-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503;
jan.hromadko@dowjones.com