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On Tuesday, Citi maintained a Buy rating on RWE AG (RWE (LON:0HA0):GR) (OTC: OTC:RWEOY) stock, although the firm reduced the share price target from EUR43.00 to EUR42.00.
The adjustment reflects a modest change in valuation amid a post-energy crisis market that has shown skepticism regarding the trajectory and quality of FlexGen™'s earnings, as well as its segment valuation.
Citi's analysis suggests that FlexGen™'s earnings are on track to meet the 2027 EBITDA targets, largely supported by a rising share of capacity revenues, which account for approximately 40%.
For the 2030 targets, Citi believes they are attainable through contributions from investments in batteries, German combined cycle gas turbines (CCGTs), and potential benefits from the German capacity market.
The firm also highlighted FlexGen™ as an undervalued asset, noting its long asset duration with 3TWh hydro-nuclear volumes and equity contributions from Kelag. Given the increasing share of contracted revenue, the segment is valued at approximately EUR13 per share, using a 7x EV/EBITDA multiple.
Additionally, Citi pointed out that FlexGen™ provides RWE with a competitive advantage over its peers. This advantage comes from FlexGen™'s role as a natural hedge against the intermittent output of renewable energy sources (RES), which is increasingly important in the energy market.
In conclusion, Citi's stance on RWE remains positive, with a revised price target of EUR42 per share. This reflects confidence in the company's ability to achieve its financial targets and the strategic value of its FlexGen™ segment in the evolving energy landscape.
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