RWE shares drop as Gazprom ruling brings no boost

FRANKFURT (Reuters) - Germany's No.2 utility RWE (RWEG.DE) has doused hopes of an earnings boost following a legal ruling last week, compounding concerns about a looming profit squeeze and sending its shares to their lowest level in nearly two years.

Investors had hoped RWE would raise its full-year outlook after a court ruled Russia's Gazprom (GAZP.MM) had to base the prices it charged RWE in long-term contracts partly on spot-market rates and had to reimburse the German company for overpayments since May 2010.

But RWE on Monday said the reimbursement - which it declined to disclose - had no impact on its full-year outlook, sending its shares down 4.8 percent to their lowest level since September 2011. The stock was the biggest loser in Germany's benchmark DAX index .GDAXI.

"We think today's announcement is significant because it underscores how wrong consensus (on the company's earnings outlook) has been. We expect pressure on the shares to intensify in the coming days," UBS analyst Patrick Hummel said.

Analysts have estimated the payment from the Gazprom deal at between 300 million euros ($390 million) and 1 billion and expectations were high after main peer E.ON (EONGn.DE) had raised its outlook last year following a similar deal.

Gas contracts have been a major problem for European utilities, which are being squeezed as they agreed to buy gas under long-term deals with companies such as Gazprom and Norway's Statoil (STL.OL) when prices were firmer, while having to sell it to customers at lower prices.

RWE, along with peers which also include EnBW (EBKG.DE), is also suffering from falling wholesale power prices in Europe, its core market, due to weaker appetite for energy on the recession-hit continent and energy-savings measures.

This, in addition to Germany's landmark decision to exit nuclear power by 2022, is putting pressure on the group's ability to raise profits, helping send its shares down by 60 percent over the last four years.

RWE said it expects earnings before interest, tax, depreciation and amortization (EBITDA) of about 9 billion euros this year, while recurrent net income is seen at 2.4 billion.

Both forecasts are in line with Thomson Reuters StarMine estimates. ($1 = 0.7693 euros)

(Additional reporting by Victoria Bryan and Daniela Pegna; Editing by David Holmes)