(Wraps stories together, adds detail)
By Peter Dinkloh and Jan Korselt
FRANKFURT/PRAGUE, Aug 14 (Reuters) - German utility RWE
<RWEG.DE> and Czech power group CEZ <> raised their
earnings forecasts on Thursday, emboldened by record power
prices and cost cutting.
RWE, Europe's fifth-biggest utility, said it planned to
raise its earnings outlook through to 2012 in February next
year.
CEZ, central Europe's largest company by market
capitalisation, said it now expected net income before
minorities to rise to 48.6 billion crowns ($2.98 billion) this
year, compared with a previous forecast of 46.6 billion euros.
"The utilities' earnings story is still intact -- rising
power prices are feeding through to their earnings," said Ian
Mitchell, head of the European utility research team at JP
Morgan in London.
"But earnings growth is slowing, so utilities are also
cutting costs to further boost profits."
Power prices in the 55 billion euro ($82 billion) German
power market have risen by a third since the beginning of the
year, when companies made their earnings predictions, boosted by
soaring commodity prices.
The German power sector sets the trend for prices across the
continent both because of its size and because it provides power
to surrounding countries.
Utilities are selling most of their power in contracts for
delivery in coming years, locking in the high prices, prompting
investors to expect them to earn more than currently forecast.
"The prices for our main product, power, have risen
significantly ... one conclusion is to assume earnings will
rise" more strongly, RWE Chief Financial Officer Rolf Pohlig
said on Thursday.
RWE's expectation -- unveiled at an investor conference on
Thursday -- that it will "upgrade" its profit outlook in
February next year might bring its prediction in line with
market expectations.
The company now expects operating earnings to rise 5 percent
each year on average through 2012, while analysts on average
estimate an increase of 10 percent between 2009 and 2011.
Other utilities were also upbeat on earnings. Russian
hydroelectric giant RusHydro <HYDR.MM> expects net profit to
almost double to $1 billion in 2009.
Norway's Statkraft said it expected higher output and sales
this year after first-half power production rose 30 percent.
But shares have not reflected the companies' earnings
potential.
The DJ Stoxx utilities index <.SX6P> declined 20 percent
this year, even though large utilities throughout Europe,
including France's EDF <EDF.PA> and Italy's Enel <ENEI.MI>, have
been posting operating earnings that beat expectations.
To help boost share prices, companies including RWE and CEZ
are seeking additional measures to raise profits.
RWE Chief Executive Juergen Grossmann almost doubled the
company's target for annual cost cuts to 1.2 billion euros for
2012 from 600 million euros for 2010.
CEZ' Chief Financial Officer Martin Novak has said the
company plans a second share-buyback program, which will start
at the beginning of next year.
