RWE’s 1Q was mildly disappointing, but long-term structural tailwinds still support a Buy

Overview

This report is Goldman Sachs’ company research update on RWE following 1Q 2026. It acknowledges that 1Q came in slightly below market expectations, due to weaker trading, lower FlexGen generation, and one-off D&A items; however, the core view is that these pressures do not alter the medium- to long-term earnings framework. Goldman Sachs maintains its Buy rating and emphasizes that RWE is one of the utilities most leveraged to rising power demand.

Core views

The key views are: first, the 1Q negatives were mainly temporary and non-recurring, and normalized geopolitical and hydrological conditions should support a recovery in trading and FlexGen; second, the 2026 base net income forecast is about €1.8bn, roughly 2% below prior estimates, but the 2027-31 earnings forecast is broadly unchanged; third, EBITDA is expected to grow at about an 11% CAGR over 2025-31E, while clean EPS is expected to grow at about 14% CAGR; fourth, the target price remains €68, reflecting SOTP valuation, existing asset value, and earnings growth from long-term capacity expansion.

Analysis framework

The report uses earnings review, earnings forecast revisions, segment growth decomposition, SOTP valuation, EV/IC existing-asset valuation, and peer valuation comparison. The analysis focuses on how FlexGen, Offshore, and Onshore/Solar contribute to 2025-31E EBITDA and EPS growth, and on whether the 1Q one-off factors alter the long-term earnings trajectory.

Methodology notes

• Valuation frameworkSOTP

  Sum-of-the-parts valuation

  Goldman Sachs bases two-thirds of the target price on 2027E SOTP, at €72.5 per share; FlexGen is valued at an 8x target multiple, while the renewables business is valued using DCF.

• Valuation frameworkDCF

  Discounted cash flow

  The renewables business is valued using DCF, assuming a 6.1% WACC, with capacity additions through 2035 included and no terminal value.

• Valuation frameworkEV/IC

  Enterprise value to invested capital model

  One-third of the target price is based on existing asset value, at €59.6 per share; the model assumes no future growth beyond 2026.

• Factor frameworkGS Factor Profile

  Growth, financial returns, valuation multiples, and composite factor comparison

  Goldman Sachs’ factor framework assesses a stock’s growth, financial returns, valuation multiples, and composite characteristics through comparison with the market and sector peers.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• RWE

  Covered stock, maintained at Buy

  Strengths

  Benefits from rising power demand, capacity additions, improving FlexGen profitability, and stronger Offshore contributions; long-term EBITDA and EPS growth outlook remains strong.

  Weaknesses

  1Q results were weak, with trading activity and FlexGen generation below expectations, and the market may worry about a 2026 and beyond base-earnings gap in the near term.

  Comparison

  The report says RWE trades at a mid-teens percentage discount to peers on 2026-30E P/E and at a mid-single-digit to low-double-digit percentage discount on EV/EBITDA.

  Risks

  Economic recession, weaker power demand, LNG and power prices below expectations, higher sovereign rates, poor renewable pipeline execution, and GBP/USD depreciation.

Key data

• 12-month target price€68.00Target price unchanged.
• Current price€56.96Disclosed on the report’s key data page.
• Implied upside19.4%Derived from the target price and current price.
• 2026E base net incomeabout €1.8bnAbout 2% below Goldman Sachs’ prior forecast and slightly below Visible Alpha consensus.
• 2025-31E EBITDA CAGRabout 11%Mainly driven by capacity additions and higher FlexGen profitability.
• 2025-31E clean EPS CAGRabout 14%2031 clean EPS is expected to be €4.76.
• 2031E EPS€4.76If FlexGen profitability rises significantly, 2031 EPS could exceed €5.00.
• 2027E SOTP€72.5/shareThe main valuation input in the target-price construction.

Impact & implications

The investment implication is that the market’s reaction to the weak 1Q and the lack of a guidance upgrade may have overweighted short-term pressure and underappreciated RWE’s long-term leverage to rising power demand, capacity expansion, and improving FlexGen profitability. If trading, hydrological conditions, and FlexGen profits normalize, RWE should be able to sustain high EBITDA and EPS growth, while its current valuation still trades at a discount to peers.

Risks

• Economic recession and weaker power demand.
• LNG and power prices below expectations.
• Higher sovereign rates.
• Poor execution of the renewables pipeline.
• GBP/USD depreciation.
• If trading profits, hydrological conditions, or FlexGen generation do not normalize, 2026 and subsequent earnings could fall short of expectations.

What to watch

• Whether trading profits recover in subsequent quarters.
• Whether hydrological conditions and FlexGen generation normalize.
• Whether management raises or maintains guidance in the rest of 2026.
• Whether the pace of Onshore/Solar expansion comes in below expectations.
• Whether Offshore profitability continues to outperform expectations.
• Whether RWE’s P/E and EV/EBITDA discount to European utilities peers narrows.