By Dominic Jones | Published: January 15, 2008 | 
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Why do regulators frown on this practice?
Here’s a copy of an email I received this morning:
Dear Mr. Jones,
In the following, you will find the compiled analyst studies on the RWE share from January 3, 2008 to January 7, 2008: |
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 RWE with upside chances |
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01/07/2008
Finanzen & Börse
Lauda-Königshofen (aktiencheck.de AG) - The security experts of “Finanzen & Börse” consider RWE shares (ISIN DE0007037129/ WKN 703712) an investment with upside chances.
The suppliers of electric power will profit from rising oil prices. The recent price increases for electric power and gas back RWE’s current policy. In addition, stocks of utility groups are of a rather defensive nature and provide a ’safe haven’ in times of unrest at the financial markets.
The experts of “Finanzen & Börse” consider RWE an interesting name among the stocks of the DAX. (issue 01 of January 05, 2008) |
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| RWE buy |
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01/07/2008
WestLB
Düsseldorf (aktiencheck.de AG) - Sebastian Zank, analyst of WestLB, continues to rate the shares of RWE (ISIN DE0007037129/ WKN 703712) as “buy” and confirms his EUR 112 price target. At the beginning of the year, the analysts recommend overweighting the stocks of utilities groups. The European sector might offer above-average earnings growth, because the energy pricing story developed more positively projections made a couple of months ago. Utilities enterprises should present solid full fiscal year figures and meet or exceed their respective targets. However, there might be increased share price volatility as a result of high valuation levels and the loss of top ranks regarding dividend yields. In the current financial year, there will be a focus on the CO2 issue. RWE is the top recommendation for 2008. The shares offer a relatively low-priced opportunity to participate in the very strong energy pricing story. Owing to its coal-fueled power stations, there is some risk that RWE might be more exposed to political influence than other enterprises, though. But then, RWE has a chance to address this issue in February of 2008, when the group will publish details on its future strategy. With this background, the analysts of WestLB continue to rate the shares of RWE as “buy”. (Analysis of January 7, 2008) |
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| RWE buy |
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01/04/2008
Société Générale
Paris (aktiencheck.de AG) - Adam Dickens, John Honore and Thierry Bros, analysts of Société Générale, continue to rate the shares of RWE (ISIN DE0007037129/ WKN 703712) as “buy”. Owing to the high oil-price, the shares of RWE compensated the losses caused by the deferment of American Water’s divestment. RWE is one of the main profiteers from the high energy prices. The group is highly dependent on the German market, which is driven by wholesale pricing and not exposed to governmental influence. It seems safe to assume that CEO Jürgen Großmann will focus on the divestment of American Water, future share-buybacks, further efforts for expansion on segments with higher growth rates and new efficiency initiatives during his presentation of the new strategy on January 22. Since the analysts expect high wholesale pricing to continue and RWE to profit strongly from such a scenario, they regard the shares as undervalued at an 11% PER-based discount to E.ON. In 2006, RWE achieved EPS of EUR 4.38, implying price-earnings ratios of 21.7. For fiscal years 2007 and 2008, the analysts project EPS of 5.78 and 6.50, indicating respective price-earnings ratios of 16.5 and 14.7. They retain their EUR 105.00 price target on the stock. On this basis, the analysts of Société Générale reiterate their “buy” rating on the shares of RWE. (Analysis of January 4, 2008) |
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| RWE buy |
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01/03/2008
Citigroup
New York (aktiencheck.de AG) - Peter Bisztyga, security analyst at Citigroup, reiterates his rating of “buy” on shares of RWE (ISIN DE0007037129/ WKN 703712) and confirms his price target of EUR 111.
Yesterday the oil price exceeded the level of 100 USD per barrel. The German forward prices continued to increase as well. Prices for 2009 and 2010 climbed to 62 and 60 EUR per MWh, respectively. The trend of the prices for electric power underlines that prices for coal are the main factor second only to CO2 costs. The rise in the coal prices since May 2007 was only partly reflected in the prices for electric power. With regard to the coming three to four months, prices for electric power are expected to keep increasing. The basic price for 2009 could surpass a level of 65 EUR per MWh. This scenario supports the positive assessment of the stock. RWE should be able to profit more from price increases than E.ON. For the time being, the analysts of Citigroup stick to their “buy” rating on RWE. (analysis of January 03, 2008) |
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| Disclaimer for the analysts´ studies |
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The studies and other analysts’ statements reproduced here are not based on research carried out by RWE AG, but on research, reports, recommendations or assessments by third parties, in particular by equity and bond analysts. Reference to such recommendations and assessments serves only for reader information and is non-binding. It does not imply that RWE AG subscribes to these recommendations, opinions or conclusions in any form whatsoever, or that RWE AG supports or confirms them. RWE AG accepts no liability for the selection, current relevance, completeness or correctness of the analysts’ recommendations and assessments reproduced here. None of the information on this Internet site is to be understood as an offer for purchase of RWE shares or RWE bonds, or to be advertising same. Any liability on the part of RWE AG for losses incurred by third parties arising from the information contained on this Internet site is precluded. |
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| Publisher: |
RWE AG
Investor Relations
Opernplatz 1
45128 Essen
| T International (excluding USA): |
+49 180 1 451280 |
| T USA: |
+11 49 180 1 451280 |
| T Germany: |
0180 1 451280 |
I www.rwe.com |
Chairman of the Supervisory Board: Dr. Thomas R. Fischer
Executive Board: Dr. Jürgen Großmann (CEO), Berthold A. Bonekamp,
Alwin Fitting, Dr. Ulrich Jobs, Dr. Rolf PohligCorporate Headquarters: Essen
Registered with the Essen District Court
Commercial Register Entry No.: HRB 14 525
V.A.T. No.: DE 8130 23 584 |
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Now, isn’t that an incredibly useful and convenient service? The IR department sends these to me weekly when new analyst reports or notes are issued. The same information is published on the company’s website. As a retail investor, one far from proficient in German, I probably would never get this information if not for them.
So why is it illegal, or almost illegal, to do this in other countries? Whose interests are really served by discouraging companies from sending me this kind of information? Certainly not mine. The more information I have, the better.
It is high time for regulators to take a hard look at the rules around companies providing third-party content and independent perspectives. They should stop treating all companies as potential fraudsters and all investors as children.
What do you think?
P.S. I don’t own shares in RWE AG. We just subscribe to the email alerts of all the companies whose websites are included in our IR website benchmarking survey. And, no, this type of email is not common, but it should be.
P.P.S. Yes, they include downgrades, too. The one prior to this led with the downgrade news. Here’s a screenshot:
Related:
SEC urged to issue new IR website guidelines
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January 15th, 2008 at 10:10 am
Hello, meanwhile many companies show their estimates on their website. Have a look to Georg Fischer http://www.georgfischer.com/628/652/654/5963.asp.
Or also look to MAN http://www.man.de/MAN/en/Investor_Relations/MAN-Aktie/Analystenschaetzungen/
Important is, that the content comes from the original source/plattform. In the case of “aktiencheck” I assume this is not the original source and writers/students transcript the original source. Mistakes are programmed. Listed companies are responsible for their webpage content - so any transcription might become a “legal bomb”. This can be the reason why you will not find it also on RWE webpage.
January 15th, 2008 at 10:29 am
Hi Ingrid,
A lot of companies in the U.S. and elsewhere include earnings estimates, but these are not as useful as understanding the reasoning behind those estimates.
The summaries in the email are in fact posted on the company’s website. I posted a link to them above.
While the translation isn’t the best, it’s better than a machine translation that I get if I transcribe the German using Google Translate or Systran. And since they’re attributing the source, I don’t see errors as a problem.
I much rather get the information than be without it. Like most people investing in stocks, I’m smart enough know that analysts are wrong most of the time. Still, I appreciate knowing what they’re saying. Have you ever heard an investor complain about having too much information? ;-)
January 15th, 2008 at 10:44 am
But those examples you provide are nice estimates. The MAN ones would be better if they were translated. My German isn’t that good.
January 15th, 2008 at 11:00 am
Hi Jones,
of course investors should know everything about the company - they are the owners! Not management and IR departments.))
But the big missunderstanding in “just adding different estimates” - even in full text is that (believe me!) the last (!) estmate will move the market. The one who shouted loudest and is most republished on company webpages, newspapers or agencies.
And this is real bad (as you also mentioned: most analysts are wrong or act in their own interesst..and in cases where their employer - the bank - owns own positions.) As investor I can only follow estimations if I have the average or medium of ALL estimates of a certain period. Anything else is eyewash and not real serious in my eyes.
If we additional consider that a company in many cases is not able to deliver all relevant estimates or make sure that they are “intime”, the average/medium will not real “break” the general forcast or the general direction.
Companies are forced to do things correct. Here is my critical point. But - I assume it is your job to enlighten IR departments - how to communicate in a correct, open and legal way.
January 15th, 2008 at 12:35 pm
Ingrid,
I don’t understand what the problem is with this from your perspective. They’re just telling me what analysts have been saying. They also post estimates separately on their site, which I don’t really care about more than knowing if they beat or miss.
Perhaps the issue is that they compile the estimates themselves from 50 different analysts rather than use those compiled by a service provider. That’s unusual, but again it doesn’t really bother me if the estimates are compiled by RWE or FirstCall or FactSet or whoever.
All I know is that they are going out of their way to keep their shareholders informed about what is being said about them by analysts. And, honestly, I can’t help but think that reflects very positively on them.
Are they taking a risk doing so? Yes, in a couple of ways. First, sentiment could sour and they could soon be sending me only news of downgrades. Based on past experience, that’s exactly what they’ll do if sentiment does change. As a result, I’ll trust them more.
Could they get something wrong? Yes. But since I’m only using the information for my own interest and not for trading decisions, it would not be a big deal if they did get something wrong.
I guess I’m just thinking that if you are going to make trading decisions based on analyst recommendations, then you would use Bloomberg and the like and not a corporate website. I’m just trying to be realistic about who is using the information and why they are using it.
January 15th, 2008 at 12:47 pm
This is why we hardly ever post examples of good practice. Because something will always go wrong or someone will see a problem. Right now, the page on RWE’s website is down due to too much traffic!
On the upside, it’s nice to think IR Web Report can “slashdot” IR websites.
Update: OK, it’s back now.
January 15th, 2008 at 1:19 pm
nice slashdot effect, Jones. Akin to a Digg effect in reverse.
January 15th, 2008 at 1:27 pm
Derek,
Ha, it would be nice to get Digged/Dugg once in a while, but it has never happened and probably never will. Far too peripheral.
January 15th, 2008 at 1:47 pm
All of this terminology talk reminds of the fact that the American Dialect Society chose “subprime” as their word of the year, beating out “Facebook.”
So perhaps our chances of being Dugg are not that remote.
January 15th, 2008 at 10:28 pm
Mr Jones, you wrote:
“Could they get something wrong? Yes. But since I’m only using the information for my own interest and not for trading decisions, it would not be a big deal if they did get something wrong.”
Your tolerance and forgiveness are admirable. But here in the litigious US of A, some investors do rely, at least in part, on analyst recommendations for their trading decisions. Or, more to the point, they say they rely very heavily on the reports that turned out to be wrong when they are testifying in courtrooms following their unfavorable trades.
I recognize that all communications involve risk. And I agree that investors are better served with more information. But I would also prefer that analysts, not companies, decide who gets to read their reports, in the hope that more people will pay for them and more analysts will be employed.
January 15th, 2008 at 11:11 pm
Paul,
By the company getting something wrong, I mean poorly written translations of German to English. Besides, anyone who relies on summary information from an analyst note a week old only has themselves to blame if they lose money. Frankly, I’ve never met someone that stupid who knows the difference between a stock and a bond. If they don’t then, as far as I’m concerned, their brokers are not doing their jobs keeping them from blowing their money, and that includes online-only brokerages. I’ve always said the suitability rule should never have been dropped for online only brokers (but that’s another story).
As for analysts rather than companies deciding who gets their work, I couldn’t agree more. Analysts work hard and deserve to be paid. However, in this case, the company is sending me highlights long after the fact. This has no more value than background, and is in effect free advertising for the analysts and their firms. Much less harmful to analysts than what is pushed out via proprietary systems like Thomson and Bloomberg in near real time.
I think that most companies and IROs would never do what RWE does — even if regulators allowed or encouraged it. They’d be afraid. They wouldn’t want to send information to investors that is negative about their firms.
And that’s all the more reason regulators *should* permit it, so that investors can more easily identify which companies are more trustworthy and transparent.
Right now, everyone hides behind this idea that linking to or re-posting analysis or commentary from third parties is not possible under the current regulatory framework. And, for all practical purposes, it is extremely murky what you can and cannot do. And as you say, the plaintiffs bar can have a field day with this stuff. So let’s provide some kind of safe harbor. Spell out clearly what you can and cannot do, in the interests of investor protection.
The only winners under the current state of affairs are companies with something to hide. I can’t see why analysts and regulators would want to side with those sorts of companies.