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Updated on March 23, 2011

RWE share looks like a good buying opportunity


The RWE share currently looks like a good buying opportunity for the following reason.

On March 15, 2011, the German government announced a decision to shut the country’s seven oldest nuclear power plants (commissioned before 1980) for 3 months in order to conduct safety reviews. The 3-month closure is obviously elastic, depending on the results of the reviews and unforeseen events at the Fukushima nuclear complex in Japan. The March 15 decision contrasts with a September 2010 agreement to extend the life of Germany’s nuclear plants by an average of 12 years. The oldest of the plants currently in operation would serve for 8 years beyond 2021 and newer plants would serve an additional 14 years.

In ordinary circumstances, RWE generates some 20 TWh annually from its Biblis reactors, Biblis Block A and Biblis Block B. (RWE also generates power in the UK and the Netherlands).  Following the government’s announcement, RWE took Biblis Block A offline on March 16. Biblis Block B had previously closed on February 25 for inspection.

A decision to restart after the 3-month review period ends clearly would enable RWE to continue generating inexpensive power and would likely attract the attention of European and global investors. Both the events in Japan and the immediate reaction by the German government underlie the sharp rise in German power prices and global commodity prices. German power forward prices for 2012-13 have risen some 10% since March 10, while the RWE share has fallen some 8% since March 10 and 14% year to date.  Currently the share price trades at 43.5 EUR which is lower than the March 2009 bottom. Figure 1 shows RWE’s share price development since 2006.

RWE proposes a dividend yield per share of around 8% and the P/E is around 7. Thus, we conclude that the current share price including the dividend yield appears attractive.


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