(Bloomberg) -- Germany’s RWE AG management should eliminate uncertainty around a share buyback program as the energy company’s stock continues to lag behind its peers, according to activist investor Selwood Asset Management.
“Earlier this year, the lack of clarity on this issue fueled false hope and speculation among investors,” Karim Moussalem, chief investment officer for equities at Selwood wrote in a letter to RWE’s management dated Oct. 9. “If there is no genuine intention to pursue a buyback program, I strongly urge management to rule it out entirely, or at least provide a private explanation to shareholders outlining the reasons behind this decision.”
Several investors have been urging RWE to conduct a share buyback as its shares have fallen about 23% this year, falling behind a 3.7% gain in the Stoxx 600 Utilities Index. The lackluster performance has increased pressure on RWE to cave in to investor demand.
Since sending the letter to RWE and some investors last week, Selwood has “received supportive feedback from some of the company’s largest shareholders on the issues raised,” Moussalem told Bloomberg News by phone on Monday.
Chief Executive Officer Markus Krebber last month hinted the company could consider share buybacks, according to a sales trading note from Jefferies Financial Group Inc. However, RWE later said there’s no such plan for share buybacks “at the present time” and focus remains on implementing its organic investment program.
Moussalem declined to quantify Selwood’s position but said it’s the firm’s single biggest stock holding. He said a share buyback “would make sense” yet cautioned such a move could become politically contested. RWE is among the potential recipients of billions of euros in subsidies for the country’s hydrogen roll-out plan.
Selwood urged RWE to implement a transparent communication strategy to promptly reduce confusion. The German company should also set boundaries on M&As to avoid overreach in overseas markets, especially in the US, the London-based hedge fund said. In a Bloomberg News interview last month, RWE’s Krebber said the company isn’t looking to acquire power generation, ending speculation around a potential stake purchase of US power-plant giant Calpine Corp.
“RWE has immense potential as a leader in the energy transition, but the current communication strategy and lack of strategic alignment have left a substantial gap in share price performance that is entirely management-related,” Moussalem said. “It is critical that the board and leadership team urgently recognize and address these issues to restore market confidence and maximize shareholder value.”
(Updates with Selwood comments and more context from sixth paragraph.)
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