November 14, 2019 / 6:53 AM / 22 days ago

Fresh off E.ON-asset swap, RWE renewables outlook disappoints

FRANKFURT (Reuters) - RWE AG (RWEG.DE), Germany’s largest power producer, gave profit forecasts for its renewables business that fell short of some analysts’ expectations, casting doubt over whether the booming sector will prove as lucrative as hoped.

FILE PHOTO: The headquarters of the German power supplier RWE, which plans to break up subsidiary Innogy and share its assets with rival E.ON, is pictured in Essen, Germany, April 24, 2018. REUTERS/Wolfgang Rattay

Fresh off a deal to acquire the renewable units from peer E.ON (EONGn.DE) and former subsidiary Innogy (IGY.DE), RWE said pro-forma adjusted core earnings from green energy operations would be 1.3 billion-1.5 billion euros ($1.4 billion-$1.7 billion) this year.

“The guidance is likely to be seen as ‘light’,” Goldman Sachs said in a note, adding markets might be disappointed given the businesses had delivered about 900 million euros in first-half core profit before stripping out some activities.

Jefferies analysts suggested the business might not live up to expectations next year in the wake of RWE’s 2019 numbers, saying average analyst forecasts of 1.7 billion euros (£1.46 billion) in 2020 for the division’s like-for-like adjusted core profit “seems high-end to us, at first glance”.

The renewable industry has continued growing, but margins and profits shrunk as the sector weans itself off subsidies that were designed to help it compete with conventional power sources.

In addition, red tape in Germany has led to a near stand-still in onshore wind expansion, causing thousands of job losses at industry heavyweight Enercon and drawing criticism from leading industry associations in the country.

“Legal and regulatory frameworks are particularly important when it comes to the attractiveness of investments. These are areas in which countries compete for investment resources,” RWE Chief Financial Officer Markus Krebber said.

“Germany is not well positioned in this contest at present.”

Shares in the group were down 2.8% and were among the biggest decliners in Germany's benchmark blue-chip index .GDAXI. RWE shares have gained 51% since the asset swap with E.ON was announced in March 2018, while E.ON shares only gained 8%.

RWE, Europe’s third-biggest renewable player but also the continent’s biggest CO2 polluter, also raised its outlook for the second time in three months, citing payments from Britain’s reinstated scheme to reward back-up power capacity.

RWE said it stands to receive 230 million euros in suspended payments for 2018 and 2019 after Brussels last month gave the go-ahead for the mechanism, which pays power generators for keeping plants on stand-by in case of outages.

This also stoked smaller peer Uniper (UN01.DE) to raise its full-year outlook earlier this week.

The German company expects adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of 1.8 billion-2.1 billion euros in 2019, up from 1.4-1.7 billion previously.

Additional reporting by Vera Eckert and Anika Ross; Editing by Sherry Jacob-Phillips and Edmund Blair

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