RWE shares decline: Amprion majority sealed, but capital increase causes unease

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At the center of the latest development is the transaction itself. "Die Essener haben ihre Beteiligung am Stromnetzbetreiber Amprion inzwischen tatsächlich auf einen Mehrheitsanteil aufgestockt, wie Presseberichte zuvor diskutiert hatten," according to sources close to the company. With the completion, RWE now holds 55 percent of Amprion, one of the four major transmission grid operators in Germany. "Der Deal ist sofort ergebniswirksam."

What surprised investors above all was the chosen form of financing. "Für Überraschung sorgte allerdings die Finanzierung über eine milliardenschwere Kapitalerhöhung." Instead of funding the purchase price from ongoing cash flow or via conventional bank loans, RWE issued new shares, diluting existing shareholders. The purchase price of around 3.6 billion euros was due immediately.

Background: Amprion and energy infrastructure

The market reaction did not take long. "Die Aktien von RWE sind am Dienstagmorgen auf der Handelsplattform Tradegate um mehr als 3 Prozent unter ihren Xetra-Schlusskurs vom Vortag gesackt." The day before, the stock had stalled in its recovery attempt at the 100-day line, as chart technicians noted.

Analysts are divided in their assessment of the deal. UBS analyst Wanda Serwinowska wrote: "Der Kaufpreis sei verglichen mit der Bewertung des belgischen Amprion-Konkurrenten Elia recht günstig gewesen." This references the market capitalization of Elia, which investors can use to gauge fair valuation of transmission grid operators.

On the skeptical side are primarily the more recent assessments from Bernstein Research with "Market-Perform" as well as older negative judgments: Barclays Capital issued an "Underweight" on February 5, 2024, JP Morgan Chase & Co. already on October 21, 2021, and Kepler Cheuvreux recommended the stock on May 15, 2020, August 13, 2020 and November 12, 2020 in each case as "Reduce" — i.e., for sale.

Analyst assessment

The background to the deal is the strategic expansion of RWE's business model. With the majority in Amprion, the group secures direct access to one of the major electricity highway networks in Germany, which transports wind power from the north to industrial centers in the west and south. For RWE, this means a steady, regulated source of revenue that flows independently of the volatile wholesale electricity market.

At the same time, the transaction increases the group's investment obligations. Transmission grids must be massively expanded in the coming years to support the energy transition, and capital increases signal to the market that the management board is willing to raise new funds directly on the stock market.

For RWE shareholders, the dilution means a calculated loss in value per share in the short term. At the same time, the group is expanding its earnings base by a regulated asset that promises predictable cash flows. Which view prevails in the market will likely also depend on the success of further grid investments.

Market reaction and consequences for shareholders

Analyst assessments remain mixed. While Bernstein Research has repeatedly set "Market-Perform" since mid-May, older sell recommendations from Barclays, JP Morgan and Kepler Cheuvreux linger in the background. UBS, meanwhile, rates the stock as worth buying. This range of opinions reflects the uncertainty about the long-term value of the Amprion stake.

Market observers also point out that the transaction could alter competition among Germany's four transmission grid operators. Through its majority, RWE has a more direct influence on strategic decisions at Amprion than in the past, which is being watched closely by competition law experts.

The reporting was distributed via the service "dpa-AFX Broker - die Trader News von dpa-AFX", which specifically targets professional market participants. The original text from Essen was published on Monday after the close of trading and initially referred to the company's announcement.

Strategic outlook

At RWE's headquarters in Essen, it is meanwhile emphasized that the expansion of the Amprion stake is in line with the long-term strategy of linking the renewable energy and grid infrastructure businesses. CEO Markus Krebber had previously described grid expansion as a central growth path on multiple occasions.

Alongside the reporting, it also became clear that the financing of the transaction had occupied banks even before the announcement of the capital increase. By opting for a capital increase instead of a bridge loan, RWE shifts the risk of value loss to shareholders, while at the same time securing a sustainable long-term financing structure.

Overall, the trading day shows that the market is reacting in the short term to the dilution effect of the capital increase, without fully pricing in the strategic value of the Amprion majority. Whether UBS with its "Buy" recommendation or the skeptical houses with their sell judgments are right will be decided by the next quarterly results.