(Bloomberg) -- Analysts and activist investors are stepping up calls for German utility RWE AG to buy back shares and spin-off its lignite operations to bolster the company’s depressed stock price.

“RWE is one of the cheapest among renewable peers,” Bernstein analyst Deepa Venkateswaran said in a note Wednesday. A buyback “sends a strong signal to the market that the management believes that the stock is undervalued” and would have a greater impact on earnings than renewable energy investments, she added.

The company — Germany’s biggest power producer — has previously ruled out buybacks to focus on long-term growth and it has rejected a quick separation of its lignite and clean-energy units. However, its stock price has declined more than 20% since the start of the year. RWE reports 2023 results next week and holds its annual shareholder meeting in May, when it’s poised to face tough questions from investors. 

Read More: RWE Tempers 2024 Earnings Outlook After Drop in Energy Prices

The firm has one of the largest renewable energy portfolios in Europe, although it still generates a substantial amount of electricity from lignite, the dirtiest fossil fuel. Activist investors Selwood Asset Management and Enkraft Capital have also criticized the utility’s positions on buybacks and lignite, respectively.

Buybacks

Selwood last week called on RWE to buy back shares, as several management and non-executive board members have done recently. 

“With their personal capital, they are doing something which they’re not doing for shareholders,” Karim Moussalem, a hedge fund manager at Selwood, said in an interview. He said he sent a letter to the company last month to demand share buybacks.

The number of RWE insiders buying the shares are the highest for any German company over the last three months, data compiled by Bloomberg shows. Chief Executive Officer Markus Krebber and Chairman Werner Brandt are among nine company officials that have bought shares in the open market this year. The purchases accelerated in February in sync with the share price drop.

RWE officials didn’t immediately respond to a request for comment on Wednesday. The company has previously said it doesn’t respond to letters from investors publicly.

Lignite Spin-Off

RWE has grappled with a separate of its lignite businesses, in part because of complications related to approvals from local governments and Berlin. 

Bernstein’s Venkateswaran said now might be a good time to revisit that option, “particularly if they consider that the share buyback option is being too myopic.” 

A decline in wholesale power and carbon prices, as well as Germany’s recent plan to compensate RWE €2.6 billion ($2.8 billion) for an accelerated phase-out of coal, weighs in favor a the spin-off, she added. 

Enkraft Capital, which says it owns about 1 million RWE shares, was more direct.

“RWE’s disastrous share price development over recent months is a reflection of management’s total complacency to address pressing strategic issues,” Enkraft Managing Director Benedikt Kormaier said in an emailed statement Wednesday. “The single biggest value driver for RWE remains the separation of its non-core lignite business. 

Critics of the spin-off say it will allow the company to attract more money for its green business, while leaving taxpayers on the hook for phasing out coal.

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