Investors are not doing their sums on E.ON, RWE break-ups - analysts

* Sum of the parts values greater than current price
    * Nuclear provisioning issue expected to be resolved soon
    * E.ON, RWE share prices have outperformed market this year

    By Christoph Steitz and Vera Eckert
    FRANKFURT, Jan 19 (Reuters) - The break-ups planned by
Germany's troubled power utilities E.ON and RWE
 promise a sum of the parts value that is now far
greater than their current market prices, analysts say,
suggesting the share prices have hit rock-bottom.
    The worst performers among German blue-chips in 2015, E.ON
and RWE lost a combined 19 billion euros ($21 billion) in market
value last year due to plunging wholesale power prices and fears
they may not be able to pay the bill for decommissioning their
nuclear power plants, which their government has ordered to be
closed by 2022.
    To raise cash and attract investors back, both groups have
come up with plans to split off their growth businesses of
renewables and networks from the traditional fossil-fuelled
power plants and energy trading business. 
    Through a separate listing of these assets in the second
half of 2016, existing and new shareholders have the chance to
focus on the "clean" business that bulls say has been unduly
eclipsed by the crisis in the traditional business.
    This, UBS analyst Sam Arie says, will trigger "a rethink of
valuations, which could lead to a 10-20 percent uplift for E.ON
and RWE - even if traditional conventional generation and
trading (businesses) are valued at zero".
    For the time being many fund managers are still sitting on
their hands as much still depends on whether nearly 40 billion
euros of nuclear decommissioning liabilities faced by the four
main utilities will be shared with the government.
    Berlin has suggested such a move is possible, pledging to
find a solution this year, with first recommendations for how to
solve the problem due in February. 
    Liabilities aside, investors welcome the restructuring as it
refocuses the companies on the few growing areas in an otherwise
shrinking sector.
    "Gas, networks and renewables: those are the growth areas
for the utilities," said Andreas Schneller, fund manager at
Swiss utility specialist EIC, who no longer owns E.ON or RWE
shares but is waiting to see how these businesses will perform
once their shares are separately traded.
    And while the grids and renewable arms are seen attracting
insurers and infrastructure funds, more risk-hungry players,
such as hedge funds, are also expected to be interested in
hunting for value in E.ON and RWE's legacy businesses once their
  share prices are a simpler function of management performance.
    "It is important for the utilities not just to focus on the
problems when they reposition themselves, as that risks (that)
they don't see the wood for the trees," said Thomas Schlaak,
head of energy & resources at Deloitte in Germany.
    Upgrading E.ON shares to a "buy" after four years, UBS's
Arie is among a group of analysts that has recently changed its
view on German utilities, helping them to outperform Germany's
blue-chip DAX index since the beginning of the year.
    The splits, the analysts argue, will raise the enterprise
value (EV) of E.ON and RWE - calculated as equity plus debt and
provisions - because the valuation of their grid and renewable
operations will no longer be overshadowed by loss-making power
    At 3.9 times and 2.6 times, respectively, E.ON and RWE's
EV/EBITDA earnings ratios are currently the lowest price
multiples among the large European utilities, which trade at an
average 5.6 times.
    If separated, their grid and renewables units would be
trading on EV/EBITDA multiples of eight times and 7.6 times
respectively, according to earnings estimates by Deutsche Bank
and Bernstein for 2017.
    This compares with an expected five times and 3.7 times for
their legacy businesses for 2017 estimated earnings.
    Grids and renewables will account for most of the 40.6
billion euros in EV of the future E.ON once it has split off
energy trading and power plants later this year, Deutsche Bank
reckons. E.ON's total EV currently stands at 29.2 billion euros.
    And even stripping out its 16 billion in nuclear provisions,
E.ON's future market value would stand at about 24 billion
euros, compared with 17 billion euros currently.
    "With the shares at a material discount to the sector, we
think even commodity bears could see the value case at these
levels," Goldman analysts said.
    At RWE, which JP Morgan calls a "mispriced opportunity", the
picture looks no different.
    Bernstein reckons that RWE's retail, renewables and networks
businesses - to be pooled and partly listed later this year in a
yet-to-be named unit - have a combined EV of 36.4 billion euros,
compared with a current EV of 19.5 billion euros for the whole
    Based on a share issue later this year, expected to fetch 2
billion euros for 10 percent of the new unit, RWE's growth
businesses would have a market value of 20 billion euros,
compared with the 6.9 billion RWE is worth now.
 ($1 = 0.9185 euros)

 (Additional reporting by Tom Kaeckenhoff in Duesseldorf;
Editing by Greg Mahlich)