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RWE AG (XTER:RWE) Earnings Power Value (EPV)

: €-3.75 (As of Dec23)
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As of Dec23, RWE AG's earnings power value is €-3.75. *

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

Margin of Safety is N/A

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future. Assumption: Current profitability is sustainable.


RWE AG Earnings Power Value (EPV) Historical Data

The historical data trend for RWE AG's Earnings Power Value (EPV) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

RWE AG Annual Data
Trend Dec14 Dec15 Dec16 Dec17 Dec18 Dec19 Dec20 Dec21 Dec22 Dec23
Earnings Power Value (EPV)
Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only -25.67 -9.79 3.61 -5.82 -

RWE AG Quarterly Data
Mar19 Jun19 Sep19 Dec19 Mar20 Jun20 Sep20 Dec20 Mar21 Jun21 Sep21 Dec21 Mar22 Jun22 Sep22 Dec22 Mar23 Jun23 Sep23 Dec23
Earnings Power Value (EPV) Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only -5.82 9.12 - - -

Competitive Comparison

For the Utilities - Diversified subindustry, RWE AG's Earnings Power Value (EPV), along with its competitors' market caps and Earnings Power Value (EPV) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.


RWE AG Earnings Power Value (EPV) Distribution

For the Utilities - Regulated industry and Utilities sector, RWE AG's Earnings Power Value (EPV) distribution charts can be found below:

* The bar in red indicates where RWE AG's Earnings Power Value (EPV) falls into.



RWE AG Earnings Power Value (EPV) Calculation

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. This valuation tool excludes the potential growth that a company may have so that needs to be looked at separately. Since future growth is excluded from the analysis, only the maintenance capital expenditures are subtracted from after-tax EBIT (earnings before interest and taxes) and growth capex is ignored.

RWE AG's "Earning Power" Calculation:

Average of Last 20 Quarters Last Quarter
Revenue 23,671
DDA 2,348
Operating Margin % -1.15
SGA * 25% 0
Tax Rate % -16.62
Maintenance Capex 0
Cash and Cash Equivalents 14,641
Short-Term Debt 981
Long-Term Debt 10,768
Shares Outstanding (Diluted) 744

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating Income.

2. Look at average margins over a business/Industry cycle: Average Operating Margin = -1.15%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins. Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenues as the sustainable revenue.
EPV analysis recognises that part of SG&A expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SG&A (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = €23,671 Mil, Average Operating Margin = -1.15%, Average Adjusted SGA = 0,
therefore "Normalized" EBIT = Sustainable Revenue * Average Operating Margin + Average Adjusted SGA = 23,671 * -1.15% +0 = €-271.151305 Mil.

4. Multiply by one minus Average Tax Rate (NOPAT):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = -16.62%, and "Normalized" EBIT = €-271.151305 Mil,
therefore After-tax "Normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = -271.151305 * ( 1 - -16.62% ) = €-316.21258462142 Mil.

5. Add back Excess Depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess Depreciation = Average DDA * % of Excess Depreciation (after tax at 1/2 average tax rate) = 2,348 * 0.5 * -16.62% = €-195.1178085 Mil.
"Normalized" Earnings = After-tax "Normalized" EBIT + Excess Depreciation = -316.21258462142 + -195.1178085 = €-511.33039312143 Mil.

6. Adjusted for Maintenance Capital Expenditure:

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditures as maintenance CAPEX.
RWE AG's Average Maintenance CAPEX = €0 Mil *.
* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. RWE AG's current cash and cash equivalent = €14,641 Mil.
RWE AG's current interest bearing debt = Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation = 10,768 + 981 = €11749 Mil.
RWE AG's current Shares Outstanding (Diluted Average) = 744 Mil.

RWE AG's Earnings Power Value (EPV) for Dec23 is calculated as:

EPV = ( ( Norm. Earnings-Maint. CAPEX *) / WACC + CashandEquiv - Int. Bearing Debt ) / Shares Outstanding (Diluted Average)
= ( ( -511.33039312143 - 0)/ 9%+14,641-11749 )/744
=-3.75

Margin of Safety (EPV)=( Earnings Power Value (EPV)-Current Price )/Earnings Power Value (EPV)
=( -3.7500605807697-32.49 )/-3.7500605807697
= N/A

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.


RWE AG  (XTER:RWE) Earnings Power Value (EPV) Explanation

Assumption: Current profitability is sustainable.

Earnings power value (EPV) uses a very basic equation which assumes no growth, although it does rely on an assumption about the cost of capital as well as the fact that current earnings are sustainable. It also involves several adjustments to clean up the underlying Earnings figures.


Be Aware

Though using today's earnings in calculating Earnings Power Value, GuruFocus is normalizing these earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average earnings over 5 years.


RWE AG Earnings Power Value (EPV) Related Terms

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RWE AG (XTER:RWE) Business Description

Industry
Address
RWE Platz 1, Essen, NW, DEU, 45141
Since the deal with E.On, RWE is refocused on power generation, mostly in Europe. It owns 38 gigawatts of power generation capacity: 28% from lignite and hard coal plants, 37% from gas plants, 40% from renewables including pumped storage and batteries. Besides Germany, RWE's power plants are chiefly located in the United Kingdom, the Netherlands, Turkey, and the United States for many onshore wind farms.
Executives
Helle Valentin Supervisory Board
Ullrich Sierau Supervisory Board
Mag. Dr. H.c. Monika Kircher Supervisory Board
Dr. Hans-peter Keitel Supervisory Board
Dr. Markus Krebber Board of Directors
Dr. Michael Müller Board of Directors
Zvezdana Seeger Board of Directors
Dr. Werner Brandt Supervisory Board
Ute Gerbaulet Supervisory Board
Dr. Erhard Schipporeit Supervisory Board
Hauke Stars Supervisory Board
Dr. Andreas Wagner Supervisory Board
Dr. Rolf Martin Schmitz Board of Directors
Dagmar Mühlenfeld Supervisory Board
Peter Ottmann Supervisory Board

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