From FT's Lex Column:
Take the word “German”, put it together with “utility”, and you ought to have a textbook definition of reliability. So why is it that Germany’s two largest utilities, RWE and Eon, still trade at a valuation discount to the European utilities sector? Although this has narrowed significantly on a forward price/earnings basis, RWE’s shares are at a 32 per cent discount on enterprise value to forecast 2008 earnings before interest, tax, depreciation and amortisation; Eon’s are at 14 per cent.
There is some justification for the “German discount”. RWE, which last week delayed plans to sell American Water, its US subsidiary, on Wednesday said it would increase investment in renewable energy. But greater strategic clarity is required. Following its failed diversification, RWE lacks the bulk to dominate in a European sector that has consolidated around it. Strategic direction is also an issue at Eon. With a €95bn market capitalisation, it has recently embarked on a three-year €60bn investment programme....MORE