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RWE’s plans to navigate the changing energy landscape by undertaking an Eon-style business split might not be enough to meet the challenges still faced by the company.
The warning came from analysts at Investec who say they are “sceptical” about the value creation logic put forward by the company.
Npower parent company RWE saw its share price rocket 20 per cent on Tuesday after announcing its split. Under the plans RWE will separate its retail, networks and renewables interests to form a new company with stronger growth potential than its centralised thermal generation and nuclear-focused interests.
But Investec argues that the balance sheet threat posed by nuclear decommissioning and its carbon intensive generating fleet will remain. In addition, there is a level of execution risk in implementing the overhaul, Investec said.
“The idea is that the deal unlocks value for existing shareholders through higher transparency and greater investment capacity, but we would argue that a good deal of this is optical rather than fundamental,” Investec said in an analyst note on Thursday morning.
“RWE retains the challenges of substantial nuclear liabilities, an environmentally-challenged power fleet, and a stretched balance sheet. The deal itself involves various execution risks, and we are sceptical about whether investors will attribute full value to a subsidiary with a relatively small free-float, and the likelihood of further offerings,” the note added.
RWE said on Tuesday that its new company spin-off will create a “platform for growth” which will “strengthen the viability of the group overall”.
The company will remain a majority shareholder of the company but will focus on the firm’s beleaguered conventional power generation and energy trading operations.
“The group’s restructuring is our response to the transformation of the European energy landscape,” said RWE chief executive Peter Terium.
The new company will be listed on the stock market “probably” in late 2016, the company said, with some 10 per cent of the new company’s share capital to be offered to the public.
The proceeds will be used to finance further growth in markets with good future prospects, RWE said.
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