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RWE Divests 49% Stake In UK Offshire Wind Farm For $863M; Street Bullish
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RWE Divests 49% Stake In UK Offshire Wind Farm For $863M; Street Bullish

German utility RWE AG has inked an agreement to sell a 49% stake in the UK offshore wind farm Humber Gateway to Greencoat in a cash deal worth GBP 648 million ($863 million).

RWE (RWEOY) said that the divestment is part of its capital rotation program, adding that the sale proceeds will be used to finance further growth in its renewable energy business. Following the transaction, RWE will remain the majority shareholder in the project and the wind farm will continue to be operated by the German utility. Closing of the transaction is expected by mid-December 2020, subject to the approval of RWE’s supervisory board.

Humber Gateway, which has an installed capacity of 219 megawatts (MW), is located off the coast of East Yorkshire. Greencoat is a UK-based investment manager whose funds invest in operating UK wind farms and other renewable projects.

The deal with Greencoat does not change RWE’s financial guidance or its ambitions for investment and growth in the renewable energy business, the company said. By the end of 2022, the utility has a target to expand its renewables portfolio to more than 13 gigawatts capacity by investing €5 billion net, or up to €9 billion with partners. To achieve its growth targets, RWE has a project development pipeline of more than 22 gigawatts, across all of the company’s strategic core regions.

RWE noted that the UK will play a key role in the strategy to grow its renewables business and to become carbon neutral by 2040. The company is currently constructing the offshore wind farm Triton Knoll and is developing the Sofia offshore project, which will enlarge RWE’s existing UK portfolio of nine offshore wind farms. In addition, RWE recently signed agreements to develop extension projects at four offshore wind farms. The company also has a strong footprint in the UK onshore market, it said. 

RWE stock has already served investors well, jumping 36% so far this year. Looking ahead, the average analyst price target stands at $44.18, and indicates another 6.3% upside potential lies ahead over the coming year. That’s with a Strong Buy analyst consensus based on 3 Buys versus only 1 Hold.

Jefferies analyst Ahmed Farman on Oct. 29 upgraded the stock’s rating to Buy from Hold with a price target of $47.50, as the analyst argues that RWE’s “extensive” project pipelines and “resilient” balance sheet should allow the utility to grow its offshore wind capacity by 3-times over the next 10 years.

Farman noted that this growth should translate to core EBITDA and earnings growth of 6% over the same period. (See RWE stock analysis on TipRanks).

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