RWE "hold"

17.05.06 - AC Research

NEW YORK, May 17 (newratings.com) - Analyst Henning Wagener of AC Research reiterates his "hold" rating on RWE (RWE).

RWE is a leading DAX-listed utilities corporation.

According to AC Research?s research note dated May 16 and published this morning, the company reported a 25% rise in its 1Q06 sales to ?13.807 billion. RWE said its EBITDA rose 14% in the quarter to ?2.768 billion, while operating results improved from ?1.95 billion to ?2.256 billion. The company posted a 6.8% rise in its earnings before taxes from continued operations to ?1.609 billion. RWE?s earnings after taxes rose 7.5% to ?1.048 billion, or ?1.86 per share, the analyst says.

The company?s results were marginally ahead of the estimates, the analyst reports. The upside was mainly on account of favourable weather conditions, AC Research adds. RWE?s results were helped by seasonal non-recurring effects, which may not be projected to the full year, the analyst says.

RWE has reiterated its 2006 target for sales and operating profit growth at 10%-20% and 5%-10%, respectively. The analyst expresses his optimism regarding the company being able to achieve this target in view of its healthy performance in 1Q06.

At the current share price of ?65.30, RWE reaches a market capitalization of about ?36 billion, according to AC Research. With a 2006 P/E ratio of 14, the company?s stock seems fairly valued, the analyst says. AC Research expects energy prices to remain high and RWE to witness a friendly market environment. A burdening factor, however, may be the price decline in the market for CO2 emission certificates, the analyst mentions. Utilities corporations include the value of those in their price calculations and a continuing considerable decline in the prices of these certificates may lead to price reductions, the analyst adds.

AC Research reiterates its "hold" rating on RWE.