RWE faces growing investor criticism as renewable returns dwindle

FRANKFURT (Reuters) -RWE's investors will crank up the pressure on Germany's top power producer on Wednesday, demanding bolder moves to close a valuation gap with rivals including bigger share buybacks and even a special dividend.

The German utility, also the world's second-largest developer of offshore wind farms, has been subject to growing criticism over its capital allocation strategy, most notably from activist investor Elliott.

The U.S.-based investor last month disclosed a stake of close to 5%, currently valued at around 1.28 billion euros ($1.46 billion), urging the group to significantly increase a standing share buyback programme of up to 1.5 billion euros.

More sobering returns on clean energy projects across the industry, partly caused by higher interest rates, have forced RWE to join rivals in paring back ambitious investment programmes and seek alternatives to increase value.

Several of RWE's peers, including Enel, Iberdrola and Endesa, have either implemented or announced buybacks.

Renewable projects have also come under pressure from high inflation, geopolitical tension and uncertainty over renewable energy regulation in some markets.

"The tailwind has turned into a strong headwind," Ingo Speich, head of sustainability and corporate governance at RWE investor Deka said, according to the manuscript of a speech to be held at the group's annual general meeting later.

He said the cut in RWE's spending plans freed up cash for buybacks of 1 billion to 1.5 billion euros per year, adding this was a safer way to create shareholder value than chasing projects with uncertain returns.

RWE currently trades at an EV/EBITDA multiple of 7.4, according to LSEG data, a discount to Iberdrola's 9.6 and SSE's 8.8.

RWE has said buybacks would remain part of its future strategy, but has so far not amended its current programme.

Henrik Pontzen of Union Investment called for a special dividend, adding this way shareholders could directly benefit.

"If capital cannot currently be invested profitably, it should be distributed," he said in prepared remarks.

Elliott declined to comment.

($1 = 0.8790 euros)

(Reporting by Christoph Steitz; editing by Philippa Fletcher)