Innogy PDF

Equity Research 12.06.
2018 Energy/Utility
Innogy (IGY:DE) HOLD

“A German market leader with traditional mid-stream network operations and retailing
Essen, Germany
segments with aspirations to transform into an upstream renewables player in Europe,
IGY:DE while maintaining dividend pay-outs above industry benchmarks.“
Frankfurt Stock Exchange
Innogy SE (“Innogy”, “company”, firm”) is an German-based diversified utility market
12-m rating BBB+ leader in mid-stream grid & infrastructure network operation with a downstream retail
segment (B2B and B2C customers) alongside an upstream gas and renewables energy
12m target price 35.36 generation portfolio (wind-, hydro-, and solar power).
Last Closing Price
35.97 Investment Recommendation
as of May 26, 2018
We issue a HOLD recommendation with a 1-year target price of EUR 35.36 per share,
Downside Potential -1.7% representing a -1.7% downside potential from its May 26, 2018 closing price of EUR
36.0.
Figure 1: Stock price performance
150%  Favourable Dividend Pay-outs: Innogy provides c. 20% higher dividend yields
(4.5% for Innogy) compared to its global and European peers and is aiming at
125% maintaining its 80% pay-out ratio.
100%  Shift to Renewables: Given the prospective Deal Innogy indicates a focus towards
its high potential renewables segment and declining operating costs in renewables.
75%
 RWE/E.ON- Deal: Upcoming uncertainties regarding post-merger integration,
50% especially in layoffs and brand identity.
10-16 04-17 10-17 04-18
 Aggressive expansion leaves Innogy vulnerable: We question Innogy’s ambitious
DAX 30
EuroStoxx 600 Utilities project pipeline, given the oversupply in renewables in Europe and tight project
Innogy SE schedule in the U.S.
 Regulatory Environment: Even though the “Energiewende” legislation leads to

Trading Data and Key Metrics higher renewable installations, it is yet unclear how these regime changes will affect
wholesale electricity prices based on higher competition tender procedures.
52-Week High/Low 28.86/42.68
Market Cap. (m) 19,983 Recent News
Shares o/s 555.56 April 27th 2018: Takeover Offer for innogy SE by E.ON Verwaltungs SE Published
Avg, Volume (mm) E.ON Verwaltungs SE published its cash offer for innogy’s no-par value bearer shares at
Beta (2Y-W) 0.30 EUR 36.76. In addition, innogy’s shareholders will receive dividend payments for fiscal
Dividend Yield 4.43% year 2018, which are expected to amount to EUR 1.64 per share.
Free Float 23.2%
EV / Sales 0.9x April 3rd 2018: GBP 1.5B Offshore Wind Farm “Galloper” Switches on all Turbines
EV / EBITDA 9.4x The project was completed within budget and ahead of schedule since it began in
EV / EBIT 18.9x November 2016. All 56 6.3MW turbines are now generating enough renewable electricity
P/E 25.5x to power 380,000 homes. The project is expected to run for the next 20 years.
March 26th 2018: innogy takes 300MW share in “Dublin Array” Offshore Wind Farm
Lukas Weise The German company’s Irish subsidiary established a strategic partnership with Saorgus
Equity Research Director Energy to develop a 600MW offshore wind project in Ireland. The next planning phase
lukas.weise@wutis.at will be led by innogy.
+43 660 2940030
Parham Allboje March 15th 2018: innogy acquires Italian onshore wind park “Deliceto”
Equity Research Associate Following this acquisition innogy Italia now has a total wind energy capacity of 90MW.
parham.allboje.samami@gmail.com Innogy and the Italian seller, Imprese e Sviluppo, have agreed to keep the transaction
price confidential.
Jan Tanson
Key Ratios FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E
Equity Research Analyst
Rev. growth % -5.48% -0.11% -4.39% -1.03% -2.47% -3.15% -2.75% -2.13%
jtanson@me.com
Gross Profit % 80.5% 79.4% 78.3% 78.9% 79.6% 79.6% 79.6% 79.6%
Thomas Unterholzner EBIT % 6.5% 6.9% 6.4% 6.8% 7.1% 7.1% 7.1% 6.9%
Equity Research Analyst Net Profit % 5.4% 5.3% 5.1% 5.3% 5.1% 5.2% 5.2% 5.0%
thomas.unterholzner@outlook.com ROIC % 6% 6% 6% 7% 6% 6% 6% 6%
Jehona Idrizi ROE % 14% 14% 17% 24% 20% 18% 15% 14%
Equity Research Analyst ND /EBITDA (x) -0.2x 1.2x 0.9x 1.3x 1.4x 1.5x 1.5x 1.6x
i.idrizi@outlook.com Interest Cov. (x) 12.4x 14.7x 12.1x 17.3x 11.6x 11.3x 11.0x 10.7x
EPS 3.89 3.58 4.59 1.58 1.66 1.71 1.74 1.80
Johannes Streihammer Payout Ratio % 75% 75% 39% 114% 80% 80% 80% 80%
Equity Research Analyst Dividend Yield % n.a. n.a. 4.9% 4.9% 4.2% 4.3% 4.4% 4.4%
johannes@streihammer.at Sources: Company presentation, Team estimates
0
Equity Research 16.05.2018 Energy/Utility
Figure 2: Revenue performance 1 Business Description

in EURm
45,000 8%
Innogy is a German-based market leader in gas distribution in the utilities industry and
-2.7%
43,500 7% operates mainly as a provider of electricity and natural gas that serves both business
-0.8% and private clients. As subsidiary of RWE and based in Essen, the company has been
42,000
7% listed on Frankfurt Stock Exchange and has gone public on October 7, 2016. The
40,500 company was founded on 1 April 2016, by splitting the renewable, grid and
6% infrastructure and retail businesses of RWE into a separate entity. Innogy has more
39,000 than 42k employees and serves 23m customers in 16 countries, with key markets
37,500 6% being Germany, UK, NL and EE.
'15 '16 '17 '18F '19F '20F '21F
Retail segment as major contributor to Innogy’s income stream
Revenue EBIT margin % In 2017 Innogy reported a revenue of EUR 32.3bn in retail and with a >76% revenue
Sources: Company presentation, Team estimates share, Retail is Innogy’s largest segment but performance-wise it has suffered a -5.3%
decline on a 5Y CAGR over the past years due to increased competition. Given the
Figure 3: Revenue performance unpromising outlook in Retail, we expect segment revenues to continue to weaken at
in EURm by segment CAGR -2.4% p.a. until 2022. On top, the UK Retail business, Npower will be separated and
60,000 ‘18F-‘22F forms a new company with SSE’s retail business.
50,000 Innogy supplies about 16m electricity customers and 7m gas customers in 11
+4.5% European countries. Given its strong portfolio of regional retail brands (eprimo and
40,000
energiedirect.nl) and sales channels, Innogy is a market leader in electricity and gas
30,000 -4.4% supply in its core markets Germany (#1 in electricity & #3 in gas w. c. 8m), UK, NL (#1
20,000 in gas & electricity w. c. 4.7m) and BE (#4 in gas & electricity) as well as other EE (#1
+1.0%
10,000 in gas w. 1.5m & electricity w. 4m).
0 -1.0%
Market leader in grid and infrastructure network operation
-10,000 '15 '16 '17 '18F '19F '20F '21F
With 30.2% revenue share and 13.7% EBIT margin, the G&I segment is Innogy’s most
G&I Retail Renewables Consolid. solid segment with growth being at 2.5% p.a. historically. We are currently expecting
Sources: Company presentation, Team estimates the segment to grow at 1.0% p.a. until 2022.
Innogy has a Grid network across 5 countries in Europe and supplies 14.6m customers
Figure 4: Operating performance with a network length of 574k km owning a strong footprint in European gas and
in EURm by segment CAGR electricity grids. In 2016, the company transported more electricity than any other
‘18F-‘22F distribution system operator in Germany.
4,000 -2.9% -1.0%
Innogy has earmarked about EUR 4.1-4.4bn in CAPEX for grids and infrastructure
3,000 -0.3% from 2017-19. This will enable the integration of further decentralised electricity
generation capacity and make grids more ‘intelligent’.
2,000 -12.5%
In Dec. 2016, the company spun off its electric vehicle related activities into a new
1,000 +4.5% subsidiary named eMobility, based in the U.S., which operates one of the largest
charging network in Europe. It includes 6.5k public charging points in 20 countries.
0 -2.5%
'15 '16 '17 '18F '19F '20F '21F Pioneer in renewables
-1,000
Given its significant 26.1% EBIT margin and 10.4% p.a. growth, the renewables
G&I Retail Renewables Consolid. business is not only Innogy’s most promising segment, but also its smallest with only
Sources: Company presentation, Team estimates 3.3% revenue share. By looking at Innogy’s takeover of E.ON’s renewables business,
adding 6GW capacity, we expect the segment to grow at 4.5% p.a. until 2022 on a
Figure 5: Geographic distribution standalone basis. Its major production sites are located in Germany, the UK, the NL,
PL, SP and IT.
100% The company’s current energy mix is 2.8GW (1.8 Onshore + 1.0 offshore) coming from
80% wind farms, 0.03GW from solar and 0.7GW from hydroelectric energy. Combined it
60% generates 11TWh of electricity serving 3.5m customers.
On Jan 2017 the company acquired Belectric Solar & Battery in order to expand the
40%
solar and photovoltaic business. Besides the operation of green energy assets, this
20% also includes construction and project development.
0% Innogy has recently undertaken expansion projects in Ireland (onshore wind projects)
2013 2014 2015 2016 2017 and North America, (acquisition of a 2GW onshore wind project pipeline) in key
UK Germany Other Europe locations such as New York, adding another 500MW until 2020. A strong driver for the
renewable segment is the EU Commissions ambitious goal to become a global leader
in renewable energy and therefore aiming to produce at least 27% of the energy
needs from renewable resources in 2030.
Strategy
In our view, a key part of Innogy`s investment case is its ability to benefit from long-
term renewable growth opportunities in its core markets. However, Innogy is lagging
Renewables
behind other renewables-focused peers in terms of under-construction renewables
Retail capacity, resulting from the small development pipeline due to the balance sheet
Grids & Infrastructure constraints at RWE during its IPO.
Sources: Company presentation, Team estimates
1
Figure 6: Under-construction renewables

There are currently only 450MW of capacity under construction, excl. Triton Knoll, where
capacity until 2019, pro-rata (MW) total planned capacity is 860MW – a decision about partnership options or investment
in MW still has to be made.
156 3,669
179 In the long term, Innogy estimates to grow its renewables capacity up to 5GW by 2023
114 (incl. Triton Knoll). However, we note that its ‘17-’23 pipeline remains very uncertain,
given increasing competition and mixed success with capacity auctions. In fact, we see
3,220
limited organic growth opportunities given its balance sheet constrains to finance its
ambitious growth plan.
Innogy`s new growth plan

2016 2017 2018F 2019E Total  Investments in FTTx and smart grids: Innogy has indicated plans to expand into
Sources: Company presentation broadband by investing in FTTx, however, it remains to be seen under what type of
regulatory structure would these investments be made.
Figure 7: Innogy’s 2017-23 development  Expansion of solar business: Innogy`s first step into the solar business, which is
pipeline (MW) still very small, involved the acquisition of BELECTRIC, a PV power and battery
storage specialist company. Innogy estimates that it could build up its solar capacity
1,300 5,000 by 1.3GW by 2023.
 Triton Knoll Offshore Wind project: Innogy as current sole owner of Triton Knoll is
2,600 reviewing options regarding future ownership structure. The company estimates EUR
1.47bn capex between ‘18 and ‘20 (spread linearly across the three years c. EUR
490m p.a.) on this project, meaning a partnership is likely.
1,100  US renewables market: Innogy`s recent acquisition of EverPower`s US onshore wind
development pipeline represents the company`s first step into the US market. This
includes 500MW of projects (advanced stages) that are expected to become
Onshore Offshore Solar Total operational by 2020. Acquisition, though, remains subject to approval by US CFIUS.
wind wind
Sources: Company presentation Innogy indicated a maximum capex allowance of EUR 10bn over 2018-20. However, we
expect capex primarily driven by investments into Triton Knoll, along with allowances for
Figure 8: Global renewables capacity new ventures and estimate annual capex of c. EUR 2.8bn until 2020.
in GW 2 Industry Overview and Competitive Positioning

3,000 +6.4%
The global utility sector (renewables, wind power and hydro power, excluding oil & gas)
2,500
+5.4% has grown steadily at a 5-Y CAGR of 8.2% and is expected to continue to grow slightly
2,000 faster at 8.4% p.a. reaching a global generating capacity of c. 2.8k GW by 2020, with
1,500 wind power (WP) and solar power (SP) growing at the highest rates.
1,000 In Europe, the renewable energy market has grown by 5.4% p.a. and is expected to
500 accelerate to 6.4% per year, reaching a total market value of EUR 286bn by 2020,
compared to EUR 216bn in 2017. Europe`s global market share in renewables is
0
therefore decreasing from 35% to 30%.
'13 '14 '15 '16 '17 '18F '19F '20F
Solar Power Wind Power Hydro Power In recent years government subsidies have been the key driver for investment in
Sources: Bloomberg renewable energy. As subsidies across Europe decrease, investments are now
increasingly driven by low costs.
Figure 9: Renewables Europe capacity Oversupply of wind power in Europe / Outlook
In Europe, WP capacity has grown by 10.7% p.a. over the last five years and is expected
in GW in EUR bn to continue to grow at the same rate until 2020.
Installations in offshore wind energy will abate slightly in 2018, however, due to a global
700 350
+10.2% oversupply (126GW production capacity vs. 60GW demand represents a global
utilization of 47% in 2018).
500 +10.7% 250
Cost of wind energy is falling in both on- and offshore technologies as turbines extract
300 150 more power output and competitive capacity auctions drive developers to lower costs.
The shift to taller turbines with larger rotors (102 diameter in ’15 to 135m in ‘30) enables
100 50 costs (LCOE1) to keep falling, especially in the offshore wind sector. The use of 7- and 8-
MW machines mainly from MHI-Vestas and Siemens, from a typical 3-MW prior,
-100 '13 '14 '15 '16 '17 '18F '19F '20F -50 illustrates this trend. Even larger MW-machines will be in operation after 2020.
Wind Power (Off- & Onshore) Also fossil fuel cost ranges from EUR 50 to 170/MWh. Projects commissioned in 2017
Solar Power show average LCOE for onshore wind of EUR 60/MWh, utility-scale solar photovoltaic
Total Renewables Europe
EUR 100/MWh, hydropower plants EUR 50/MWh and offshore wind at EUR 140/MWh.
Sources: Bloomberg
The trend goes to EUR 30/MWh for competitive projects in 2020. Fall in prices is due to
technology improvements, but also competitive procurement and experienced project
developers.
1) Levelized Cost of Electricity
2
Figure 10: Levelized Cost of

Solar Power Europe
Electricity (LCOE)
In Europe, SP capacity has grown by 9.0% p.a. over the last five years and is expected
in EUR/MWh to continue to grow slightly slower at 8.6% per year until 2020.
250
Demand for solar-energy installations is expected to continue building in 2018, even as
200 China adds expected record installs of more than 50 gigawatts in 2017.
150 China is set to contribute over half of new global installations, with activity in the U.S.
100 slightly reduced. New installation volume may begin to emerge from capacity auctions in
markets such as India, Mexico and France, yet the pricing impact from these auctions
50 may constrain sales for solar-energy equipment suppliers. Innogy with its retail segment
and the installation of solar cells on rooftops is somewhat involved in this business. We
0 note that we do not expect a major impact, though.
'11H1 '12H1 '13H1 '14H1 '15H2 '16H2
Wind - Onshore Wind - Offshore Higher wholesale gas quotations and Offsetting G&I effects at Innogy
After a long decline in wholesale gas prices in WE, the gas quotations experienced a
Sources: Bloomberg 24% spike from the previous years’ low. Yet, gas became 3% cheaper for German and
1% for UK households.
Adding to that, with the transition to a tougher regulatory regime in Germany, we expect
Figure 11: One-year forward price of gas to see a material hit to G&I earnings. Although some of the earnings shortfall is likely to
on the wholesale market be offset by the reduction of the productivity factor Xgen as well as higher RAB, we also
account for the likely decrease in provision releases over time.
in EUR/MWh
24 2016 forward 2017 forward 2018 forward General favourable electricity demand in Germany and in Europe
22 Economic Growth
We expect electricity demand to grow solidly at c. 1.9-2.2% per year until 2021.
20 However, growth is strongly dependent on GDP growth in Europe and Germany.
18
Retail Market Electricity Prices
16 We note that key drivers of the price of energy in the EU are largely geopolitical
14 situation, national energy mixes, import diversification, network costs, environmental
protection costs, severe weather conditions or levels of excise and taxation.
12
2015 2016 2017 Key markets for Innogy, Germany (EUR 0.39/kWh), Netherlands (EUR 0.42/kWh) and
Sources: Irena.org, Boston Consulting Group UK (EUR 0.59/kWh), experienced the highest electricity prices for household
consumers (who consume 2.5k-5.0k kWh p.a.) in 2017, despite the low in 2016.
Figure 12: One-year forward price of gas Moreover, Germany and Italy (EUR 0.14-0.16/kWh) also saw attractive electricity prices
on the wholesale market for non-household/industrial consumers (who consume 0.5k-2.0k MWh p.a.).
Electricity prices during the first half of 2017 were highest among the EU Member States
in EUR/MWh
in Italy and Germany (EUR 0.14-0.16 per kWh), compared to the EU-28 avg. price of
72 2016 forward 2017 forward 2018 forward
EUR 0.114/kWh.
62
Innogy may capitalize on a favorable outlook for Germany and UK electricity prices as
52 the share of these price components will constantly increase. In fact, electricity prices for
42 retail customers rose by an avg. of c. 2% and 7%, respectively, compared to 2016.
Electricity prices increased by 8% in Germany and by 3% in the UK.
32
22 However, unpromising outlook for Retail at Innogy
Given Innogy`s treatment of Npower (subsidiary of Innogy and its Retail segment in the
12 UK) as a discontinued operation (DCO), we expect a material decline in overall Retail
2015 2016 2017 earnings in 2018 as well as a medium-term fall of retail EBIT (-14% p.a.) until 2022.
UK Netherlands Germany  Challenges in UK market to continue: Npower will merge with SSE’s retail
business in 2019. The company expects Npower to breakeven on a standalone basis
Sources: Irena.org, Boston Consulting Group in 2018. We think the merger is the right strategic step forward to counter the future
headwinds from increasing competition.
 Decline in German retail earnings: E-mobility and digitalization investments
pressure German retail earnings between 2018-20. We see a material 6% decline in
customers resulting in a 20% reduction of total earnings and retail EBIT margin of
just below 3% by 2022 compared to 2017.
 Normalized weather conditions: Innogy expects Retail earnings to benefit from
cooler weather in Eastern Europe (c. 20-30m), but we also see increasing
competitive pressures in these markets, too.
1) annual rate at which output prices of regulated firms have to decrease; is the portion of output not explained by traditionally measured inputs of labor and capital
used in production
2) Regulatory Asset Base 3
Figure 13: Segment revenue peer

comparison
in EURm Regulatory/Political Environment
A large portion of Innogy’s electricity generation assets in the Renewables division
80,000
#4 receives a fixed feed-in tariff of 2.6% for a predefined period, making it independent of
60,000 quotations on wholesale electricity markets, due to the “Energiewende” legislation in
Germany.
40,000
In some countries, including the UK and Poland, the subsidy system stipulates that
20,000 green certificates are granted as a subsidy for every MWh of production in addition to the
0 electricity price. In fact, these two countries have introduced auction-based procedures
to replace their support systems for renewables, which previously provided subsidies via
green certificates.
Grid & Infra Renewables
Retail Undisclosed / Other However, there is a strong need for new business models
The decline of the nuclear power industry in Germany perfectly illustrates how assets in
Sources: Thomson Reuters, Company information
the utility industry can become liabilities and the old business model of utilities is getting
disrupted. Utilities need to change their business model and move beyond the traditional
Figure 14: EBIT margins peer comparison commodity-based-model. New business models will still include the traditional activities,
60% such as power generation, grid and retail, but will need to offer new services such as
50% energy storage, energy monitoring systems, alternative generation sources smart grid
#2 and smart home.
40%
One of the biggest strengths of utilities is, that customers trust them more than
30% companies operating in other industries. This has not been used to the fullest extent
20% possible and provides potential for
 Realization: Utilities can use their customer relationships and offer energy
10%
management services and cross-sell security, telecommunication & infotainment
0% services
 Innovation further takes place in fields such as energy management, storage battery
options, smart grid and smartphone based thermostats.
Grid & Infra Renewables Future Strategic Positioning of Innogy

Retail Consolidated Innogy plans to stay true to its name and continue to provide innovative energy
Sources: Thomson Reuters solutions. Therefore, the company positions itself as a sustainable, reliable and efficient
energy provider and manager. In order to establish a unique business model and build
Figure 15: Customer base & employees sustainable growth opportunities, the German company defines and focuses on three
in ‘000 major business trends: „Decarbonization“, „Digitization“ and „Decentralization“.
100,000 #4
Decarbonization – Green Energy
10,000 Wind energy currently makes roughly 3/4 of Innogy’s total energy capacity while hydro
energy accounts for 18%. Other sources including photovoltaics – perhaps the most
1,000 promising of all sustainable energy sources – only add up to 3% of the total renewables
100 capacity. It is in this area that the company expects to rapidly grow in the future. Through
a key acquisition of Belectric Solar & Battery Innogy has taken a first step towards
10 establishing a dominant position in the photovoltaics energy segment.
Digitization – Intelligent Energy Network

Customers Employees
Innogy is part of multiple collaborative initiatives to develop a more sustainable, reliable
Sources: Thomson Reuters, Company information and efficient energy grid. Through providing more SmartHome solutions the company
Figure 16: Operational metrics aims to eliminate wasted energy and help customers save money. One example is
Innogy’s new smartphone application which allows users to pinpoint the energy
benchmarking in ‘000 consumption of various appliance in their home.
50 #4 1,500
Tausende
40 Decentralization – Energy Management

1,000 Consumers of energy are increasingly also becoming producers by installing, for
30 example, solar panels. As this trend continues Innogy wants to move from large power
20 plants away to smaller ones and increasingly become an energy manager rather than a
500 producer. One example is the virtual power plant SmartPool. It allows individual energy
10 producers to provide their production capacity to Innogy, which will then use it to respond
0 0 to fluctuations in energy demand.
Innogy’s innovation strategy focuses on four key areas: „Machine Economy“, „Urban
Exponentials“, „Smart & Connected“, „Disruptive Digital“ and „Cybersec Ventures“. The
Capacity Renewable Energy (GW)
company’s innovation hub includes an accelerator program „Free Electrons“ and a
Grid Length (in km)
venture capital fund.
Sources: Thomson Reuters, Company information
4
Figure 17: Shareholder structure 3 Management Team & Corporate Governance

5% <1%
Management Team
18% Innogy`s executive management team has been a key driving force behind the
company’s overall success since the IPO of Innogy in 2016. Especially the recently
appointed CEO Uwe Tigges who replaced Peter Terium in Dec. 2017, now holds multiple
responsibilities within the firm. He pushes the high dividend payout policy and will lead
Innogy through the asset swap of E.ON and RWE. Uwe Tigges has held positions within
the parent company RWE since 1994 and has more than 30 years of industry
experience. Dr. Bernhard Günther who is CFO since 2016 is another RWE dinosaur. He
77%
started as Head of Department Controlling in 1999 at RWE and was promoted to VP in
RWE AG 2001 before becoming Managing Director of Supply & Trading and CFO at RWE in
Other institutional investors 2013. In Mar 2018, he was victim to an acid attack and Hans Bünting replaced him in the
BlackRock meantime, next to his role a COO of Innogy Renewables. Mr. Bünting was previously
Private investors CEO at RWE and also gained experience within the firm and industry since 1998. The
Sources: Annual report executive board named 2 more members, Martin Herrmann and Hildegard Müller.
Executive Board
Name Year of birth Appointment Management compensation
Uwe Tigges Apr 1960 Dec 17 Remuneration to the management is closely linked to financial indicators such as adj.
(CEO) EBIT and adj. Net Income with the intention to mitigate principal agent problems within
Bernhard Günther Jan 1967 Apr 16 the firm to a minimum. The remuneration is composed of non-performance-based (fixed)
(CFO) and performance-based components (one-year bonus and a share-based payment in
Martin Herrmann Jul 1967 Apr 16 accordance with the Strategic Performance Plan, which is a long-term compensation
(COO) component). The variable component means that the management sets a target EBIT
Hildegard Müller Jun 1967 May 16 and NI figure at the beginning of every fiscal year and the bonus can result in 150% of
(COO) the baseline amount. From our perspective, a positive sign is the proportion of fixed,
SSP and variable compensation which is 40:36:24. The maximum compensation is
Supervisory Board 155% and minimum 40% of the baseline. The board must invest 25% of the payment in
Werner Brandt Hans Peter Lafos Innogy common shares and must hold them for 3 years after completion of the four-year
Frank Bsirske Robert Leyland vesting period leading to 7 years to obtain the full amount of the compensation. We see
Reíner Böhle Meike Neuhaus this positive incentive plan as a strong sign to align shareholder interests with
Ulrich Grillo Rolf Pohlig management goals.
Arno Han Rene Pöhlis
Maria Hoeven
Supervisory Board
Michael Kleinemeier Pascal van Rijsewijk
The supervisory board consists of 12 members who were elected at the last AGM and
Martina Koederitz Gabrielle Sassenberg
whose total compensation amounted to EUR 2.8m in FY17 (EUR 1m in FY16). The
Markus Krebber Dieter Steinkamp
compensation is strongly tied to share price performance given the obligation to spend
Monika Krebber Marc Tüngler
25% of the total compensation for the purchase of Innogy shares and hold them for the
Sarka Vojkova Deborah Wilkens
duration of their membership.
Sources: Annual report
E.ON
RWE Shareholders Capital, Shares & Voting Rights
Shareholders
RWE Downstream Beteiligungs GmbH, a subsidiary wholly owned by RWE holds a
100%
16.67% 83.33% 76.8% stake in Innogy. In Apr 2016, Innogy was created by splitting the renewables,
RWE AG E.ON SE network and retail business of RWE into a separate entity, Innogy.
Supply &
Renewables
Trading RWE, Innogy and E.ON Deal – what is it about?
Conventional E.ON, the German utility firm that is known for its giant wind-farms, has unveiled a
Networks
Power generation
complex deal to acquire Innogy’s renewables business for EUR 43bn (EUR 40.0/share)
EUR 1.5bn Retail and a series of asset swaps that will dramatically change Germany’s energy sector.
76.8%
Preussen-Elektra
Innogy SE Voluntary Closing I: Closing II:
public Joint Expiry of E.ON to take Transfer of assets Latest day of
takeover offer statement acceptance Innogy control over under consideration closing of
Renewables 12.5%
Emsland by E.ON by Innogy period AGM 2019 Innogy to RWE offer
Grid & Gundre-

27 Apr ‘18 10 May ‘18 early 30 Apr ‘19 expected by expected by 13 Jan ‘20
Infrastructure 25% mmingen
Q3 ‘18 E.ON/RWE E.ON/RWE
not before not before
Retail Other Offer period mid ‘19 mid ‘19
Initial acceptance period 27 Apr – 6 Jul

KELAG 37.9%
Additional acceptance period 12 Jul – 25 Jul
Gas Legend:
Publication of (final) take-up/acceptance 11 Jul End of Jul
storage To E.ON
Watermark updates Weekly updates (daily in last week of offer period)
Other To RWE
Sources: Company data, WUTIS analysis
5
#2 As E.ON unveiled, the acquirer will become a company purely focused on providing
player energy networks and services to retail customers, while RWE will acquire E.ON and
in Europe
8 Innogy’s renewables business by taking a 16.7% stake in E.ON via 20% capital
+60% increase. E.ON will acquire RWE’s 76.8% stake in Innogy by offering a combination of
5 newly issued shares and assets. In addition to the renewables businesses, RWE will
receive E.ON’s minority stake in 2 RWE-operated nuclear plants, Innogy’s gas storage
business and its stake in the Austrian supplier Kelag. For this, RWE will pay E.ON EUR
1.5bn in cash.
Deal Rationale
E.ON today E.ON after
The deal comes largely after both RWE and E.ON were massively affected by the
Sources: Company data Deal
“Energiewende” in Germany, and the radical move away from fossil fuels (and the
EBITDA EURbn #1 announcement of phasing-out nuclear power in 2011) towards renewables. While E.ON
37 player
spun off its conventional power operations to Uniper leaving it with the renewables,
+61% in Europe
networks and customer solution business, RWE focused on keeping conventional and
23 nuclear power operations but spinning off its renewables business into Innogy. Thus,
after steep cost cuts and company-splits, the deal is about making clear cuts, now and
strategically positioning the 2 leading European energy companies well for the future.
The deal values Innogy’s equity at EUR 22bn which represents a c. 10% premium on its
current market valuation of EUR 19.98m (as at May 26, 18).
E.ON today E.ON after
Deal We note that we see the proposed transaction as being positive for both RWE and
RAB EURbn
#1 E.ON, although more for the latter than the former.
Sources: Company data
player  As subsidy schemes start to expire across E.ON’s renewable business, the
50 in Europe concentration on regulated networks (c. EUR 37bn RAB2 vs. EUR 23bn before) and
+61%
retail (serving c. 50m customers by then vs 31m before) will improve its earnings
31 outlook in the mid-term as it expects cost synergies amounting to EUR 600-800m
p.a. by 2022 coming mainly from its 5k job cuts. However, this results in a c. 30%
post-merger accretion from 2022. The company will derive c. 80% of its EBIT from
stable, government-regulated activities.
 RWE will benefit from the integrated renewables business from both Innogy (ceases
E.ON today E.ON after to exist) and E.ON in the long-term and the double-digit renewables market growth. It
Deal will run generation capacity at c. 10 GW from on- and offshore wind as well has
Customer (m) hydro and photovoltaics.
 Given our SOTP analysis of Innogy, we note that the sell of its G&I and Retail
#3 segment stipulates an upgiving of 20bn and 4.9bn in EV in 2020, leaving it with the
player remaining 5.6bn EV in renewables (see Appendix 8.2.4).
10 in Europe
+105%
The transaction is expected to be closed by the end of 2019. The transfer of the
businesses will take place after the closing date, which we expect by early 2020.
3.9
SSE / Npower merger ahead
In early 2018, the subsidiary of Innogy, Npower (UK energy retailor) and SSE (UK utility
company engaged in generation, transmission, distribution and supply of electricity, gas
RWE RWE after and trading) have agreed to merge their retail businesses. The merger will combine
(Innogy) Deal SSE’s energy and services business (wholesale & retail segment, excluding its B2B and
Renewable capacity GW 1) Ireland business) and Npower (100% retailer) to create a new standalone energy retail
company that will be listed on the LSE. Innogy will own a minority stake of 34.4% in the
Cap- Total
Mcap EV acity Output EBITDA combined company, while the remaining equity of 65.6% will be free float.
Name 2018 2018 MW GWh FY18F FY19F
Npower 11,976 26,282 5,103 5,249 Deal Rationale
SSE PLC 14,431 23,979 2,572 2,580 The combination is part of SSE’s transformation strategy to focus on energy generation
EPM & Electricity 2,572 2,580 and network operation for gas and electricity.
Gas Production 939 890  The combination will create an efficient and the 2nd largest independent energy
Gas Storage -57 -54 supplier in the UK serving more than 11.5m customers in the UK
10,64
 The Deal allows Innogy to service residential and business clients with tailor-made
Wholesale 3 26,296 -36 -34
Energy Supply 845 801 solutions and gain a competitive position as competition is getting more fierce with
Energy-related 331 314 electricity prices expected to decline
Enterprise -8 -8 SSE is coming under heightened political and regulatory scrutiny as the government
Retail 62 59 intends to cap energy tariff prices in the UK to mitigate its strong power to influence retail
Total 385 365 prices.
growth y/y 1% -5%
Total 1,074 1,019 We assume the transaction to add EUR 2.5bn to Innogy’s EV (see figure x), once it is
Combined 26,406 50,260 6,178 6,268
completed at the end of 2018 and Q1 2019.
EV/EBITDA 7.2x
Added EV 7,289
Stake 34.4%
For our SOTP analysis we included the prospective merger by using EBITDA FY19F
EV to Innogy 2,508 Sources: Team estimates figures of Npower and SSE’s retail and wholesale segment.
1) Including On- and offshore wind power, solar and hydro

2) Regulatory Asset Base
6
Target Price 4 Investment Summary

35.36
We issue a Hold recommendation on IGY and believe that the company will be trading
SOTP
fairly in line with its current valuation throughout the voluntary takeover
(RWE/E.ON/IGY).
DCF
Therefore, we derived a 12-month target price of EUR 35.4 or -6.7% lower by mid
FY19 (EUR 36.0 as at 05/28/18) by utilizing a variety of valuation methodologies, incl.
CCA DCF, DDM, CCA and CTA.
CTA Given our assumptions that are based on company guidance, industry figures, analyst
opinions and our expert knowledge, we believe that IGY is currently valued at LTM
EV/EBITDA 7.7x, EV/EBIT 11.8x and P/E 27.9x.
DDM
We mainly base our recommendation on the following investment drivers:
0 15 30 45 60  Favorable dividend payout: We like Innogy’s favorable stable dividend yield of
Datenreihen1 Min-25% 25%-Med 4.9% since its IPO and ambition to maintain a payout ratio at c. 80%. What’s more,
Med-75% 75%-Max Innogy’s dividend yield has been constant above peer levels demonstrating its
Sources: Team estimates
strong shareholder orientation. Infrastructure/utility companies are mostly
Figure 18: Asset turnover comparison recognized for their stable business. Based on its cash & capex intensive business
TAT model, high dividends need to be paid to investors to stay attractive. The average
1.0 global dividend yield was 3.7% in FY17, however, with Innogy being able to largely
outperform this level.
0.8
 Average competitive positioning: While it has a strong position in gas and
0.6 electricity network operations G&I (#4), its renewables segment is still not
competitive. But by looking at the current acquisition including the sell of its network
0.4 and re-integration into the RWE group, RWE will become one of the top
2013 2014 2015 2016 2017 renewables players with a 8GW capacity serving >50m customers. This allows it to
Innogy Peer Group capitalize on the accelerating market outlook of 6.4%
Sources: Company data, Team estimates
 Unfavourable outlook for Retail: The loss of 262k customers in WE, mainly in
Figure 19: RoA (pre-Tax) & ROFA %
Germany (75k), NL/BL (72k) and UK (115k), despite a slight 20k gain in EE, and
10%
comparison EBIT being down -14.2% (primarily due to unexpected commodity price increases)
8% in Q1 FY18, along with increased competition, only supports our negative mid-term
6% outlook for Retail
4%  Oversupply in Europe: Given the marginal 47% utilization rate of the total
2% available capacity in Europe, the pursuit of an ambitious project pipeline to increase
0% capacity may not translate into an increased overall usage
2013 2014 2015 2016 2017
 Expected spike in renewable installations: We see LCOE and production cost in
PG ROFA % Innogy ROFA % in renewables declining, compared to fossil fuels, along with a stricter regulatory
PG ROA % Innogy ROA % regime in Europe and increased competition
 Strong growth in renewables with historic deal ahead: Innogy‘s ambitious
Figure 20: Dividend Yield % comparison project pipeline (adding >1GW) in on-and offshore wind plants and the acquisition
9.0% of E.ON’s capacity (+6GW) leads its overall capacity to jump to >10GW making it
one of the largest renewables player in Europe
7.5%
 Strong asset base: Innogy is well-above its peers in terms of Asset turnover (0.9x)
6.0% and ROA (3.5%) stipulating a strong CAPEX efficiency. In fact, Innogy has an
4.5% efficient CAPEX spending given its above peer level ROFA (Return on Fixed
Assets) of 4.5% in FY17 vs. 3.3%. What we also value is that Innogy is well ahead
3.0% of its peers in terms of ROE performance (24% vs. 8.8% in FY17)
13' 14' 15' 16' 17'
Innogy Div Yield % Peer Group  Stable margins and operating leverage: Innogy is renowned for its stable and
Sources: Company data, Team estimates predictive margins but also offers attractive ROIC (7%) and ROE (24%) that are in-
Figure 21: ROE % comparison line or above its cost of capital at 7.9% and CoE 10.1%.
30.0%
 In-line valuation: Innogy is valued largely in line or even above its peers (see
appendix) with EV/EBITDA being at 7.7x (vs. 6.7x) and EV/EBIT 11.8x (vs. 11.5x)
20.0%
10.0% Based on our analysis, we are certain that the upcoming segment uncertainties
resulting from the deal (re-position & integration), combined with weak segment
outlooks, largely offset the opportunities. Additionally, Innogy faces challenges on
0.0% management levels making us uncomfortable about the ambitious project pipeline.
13' 14' 15' 16' 17'
Innogy ROE % Peer Group We therefore recommend to stay hold until the (RWE/E.ON/IGY) deal is closed by the
Sources: Thomson Reuters, Team analysis end of 2019.
7
Equity Research Energy/Utility
Figure 22: Figure X: Revenue 5 Financial Analysis

Breakdown
Ratios & Key indicators FY13 FY14 FY15 FY16 FY17 FY18F FY19F FY20F FY21F
25% Margins %
COGS % 81% 81% 79% 78% 79% 80% 80% 80% 80%
20% SG&A % 7% 7% 7% 8% 8% 8% 8% 8% 8%
EBITDA % 8% 10% 11% 11% 12% 12% 12% 12% 12%
15% D&A % 5% 3% 4% 4% 5% 5% 5% 5% 5%
EBIT % 3% 6% 7% 6% 7% 7% 7% 7% 7%
10% Tax Rate % 48% 18% 27% 16% 19% 26% 26% 26% 26%
Interest expenses % 1.5% 1.6% 1.4% 1.8% 1.2% 1.7% 1.8% 1.9% 1.9%
Liquidity Ratios
5%
Current ratio (x) 1.3x 1.2x 1.2x 0.9x 0.8x 0.7x 0.7x 0.7x 0.7x
Quick ratio (x) 1.3x 1.2x 1.2x 0.9x 0.8x 0.7x 0.7x 0.7x 0.7x
0%
Cash ratio (x) 0.2x 0.1x 0.2x 0.3x 0.3x 0.2x 0.2x 0.2x 0.2x
13' 14' 15' 16' 17' F18'E19'E20'E21' Cash Cycle Days (Days) 90 102 98 5 12 6 6 6 6
Gross Profit Margin % Chg. In Working Capital (WC) % 1% 0% 0% -1% 0% -1% 0% 0% 0%
EBITDA Margin % Profitability Ratios
EBIT Margin % Gross Profit margin % 18.9% 19.5% 20.6% 21.7% 21.1% 20.4% 20.4% 20.4% 20.4%
Net Income Margin % EBIT margin % 3.2% 6.5% 6.9% 6.4% 6.8% 7.1% 7.1% 7.1% 6.9%
Sources: Company data, Team estimates Net Income margin % 1.3% 5.4% 5.3% 5.1% 5.3% 5.1% 5.2% 5.2% 5.0%
ROA % 1% 4% 4% 4% 5% 4% 4% 4% 4%
Figure 23: Dividend Yield and ROIC % 3% 6% 6% 6% 7% 6% 6% 6% 6%
Profitability Ratios ROIC % (ROI after Div. Payout) 3% 6% 6% 6% 7% 6% 6% 6% 6%
In EUR ROE % 4% 14% 14% 17% 24% 20% 18% 15% 14%
Cash return on assets % 11% 14% 22% 146% 35% 50% 50% 49% 48%
5.0 30% Financial Ratios
LT-Debt/Assets (x) 0.2x 0.0x 0.2x 0.2x 0.3x 0.3x 0.3x 0.3x 0.3x
4.0 25% LT-Debt/Equity (x) 0.9x 0.0x 0.7x 1.3x 1.4x 1.2x 1.1x 1.0x 0.9x
Total Debt/Equity (x) 2.5x 2.3x 2.5x 4.3x 4.0x 3.2x 2.8x 2.5x 2.3x
20% Net Debt / EBITDA (x) 3.8x 3.2x 3.2x 3.6x 3.3x 3.2x 3.2x 3.2x 3.2x
3.0
EBITDA / Interest exp. (x) 12.8x 12.4x 14.7x 12.1x 17.3x 11.6x 11.3x 11.0x 10.7x
15% EBITDA - CAPEX / Interest exp. (x) 0.9x 2.3x 3.2x 2.9x 3.0x 1.5x 0.9x 0.9x 1.1x
2.0 Equity Ratio % 0.3x 0.3x 0.3x 0.2x 0.2x 0.2x 0.3x 0.3x 0.3x
10% Sector-specfic Figures
1.0 Renewables Production Capacity (MW) n.a. n.a. 3,100 3,358 3,500 3,900 4,023 4,088 4,363
5% Renewables Production GWh n.a. n.a. 8,000 8,662 9,197 10,124 10,444 10,612 11,326
E.ON Renewables Production (MW) 6,0001) 6,0001) 6,0001) 6,0001)
0.0 0% Combined Renewables Production (MW) 10,023 10,088 10,363
15' 16' 17' F18' E19' E20' E21'
G&I Regulated Asset Base (RAB) in bn n.a. n.a. 13 13 14 14* 14* - -
EPS Div Yield % ROE % CF/CAPEX 0.63x 0.69x 0.74x 0.69x 0.69x 0.68x 0.64x 0.63x 0.66x
Strong dividend yield compared to peers
Figure 24: CF from Operations / With a dividend of EUR 1.60 per dividend bearing share for fiscal 2017, the dividend pay-
CAPEX and Profitability Ratios out ratio approximates 73% of adj. net income, which is in line with the utilities industry
(76.33%). The dividend yield for Innogy was c. 4.45 % for 2017, which is above the
0.8x 7% global industry average of 3.7% and slightly above the European peer group average of
6% 4.2%, and given its ambitious constant 80% target payout ratio sends a strong signal to
0.7x
5% shareholders.
0.6x 4%
Capital expenditures on par with previous years
0.5x 3%
Innogy SE’s capital expenditure in 2017 amounted to EUR 1,839m and thus rose
2% modestly compared to 2016. The main factor behind this was an acquisition of the solar
0.4x
1% and battery storage specialist Belectric for the Grid/Infrastructure segment, which
0.3x 0% resulted mainly in spending on property, plant equipment and intangible assets. The
13' 14' 16' 17' F18' F19' F20' F21' F22' capital expenditure from 2016 mainly resulted from effects related to the separation from
RWE. However, we expect capital expenditure to rise even further, as management
CF/CAPEX ROIC % ROA % proposed to investment opportunities of c. EUR 10bn in years 2018-2020. The Cash
Sources: Company data, Team estimates Flow to Capex ratio remained c. 0.69 stable over the last years and we expect it drop
slightly, due to the announced heavy investments.
Figure 25: current ratio
1.5x IPO Changes in working capital remain stable around the projection period
10/2016 With operating cash flows close to previous year of EUR 2,654m and changes in working
1.3x
capital of c. +1%. These changes in 2017 were influenced by higher trade accounts
1.0x receivable in the UK retail business, as well as temporary tax matters, such as refunds of
income tax, which are yet to be paid. The harsh drop in Accounts & Notes receivable
0.8x
between 2015 and 2016 from EUR 16,913m to EUR 5,557 can be explained with the
0.5x establishment of a new capital structure of the Innogy Group. As part of an
0.3x reorganization, operations were transferred from RWE to Innogy, the purchase prices of
which were offset against the financial accounts receivable from RWE, which is the
0.0x reason for the decline in other financial assets.
13' 14' 15' 16' 17' F18'E19'E20'E21'
8
Figure 26: Net Debt/EBITDA

and interest coverage ratio Net debt level projections on par with previous years
As of 31. December 2017, Innogy SE’s net debt amounted to EUR 15.6bn and thus
3.5x 10x
was slightly lower than in 2016, which resulted in the slight increase in Net Debt to
3.0x EBITDA in 2017. The level of net debt was essentially not affected by the redemption
9x
of financial debt and issuing bonds to and raising loans from third parties. Provisions
2.5x
declined from EUR 3.9bn to EUR 3.1bn and the increase in discount rate in Germany
8x
2.0x from 1.8% to 2.0% played a major role in this regard, while the reduction in discount in
1.5x 7x
the United Kingdom from 2.6% to 2.4% had an opposite effect. It is unclear how the
debt structure will develop in the future. Yet, we expect the levels of net debt/EBITDA
1.0x to remain stable among c. 3.2x, which is in line with its peers.
6x
0.5x
5x
6 Valuation Analysis
0.0x
13' 14' 15' 16' 17' F18' E19' E20' E21' Valuation Price Target: 35.36
-0.5x 4x
Net Debt/EBITDA Interest Coverage Ratio A number of valuation methodologies were utilized in deriving a target price for Innogy
of 35.36. These include a 15 year DCF and DDM based on avg. concession durations.
Figure 27: Target share price estimate Furthermore, a Relative Multiple Valuation using Public Comparable Company Analysis
and Precedent Transaction Analysis were conducted in order to outweigh the
Target
40 disadvantages of each analysis and construct a valuation range of possible share
Price
prices. Additionally, a SOTP valuation analysis was applied based on the given up
35.36
Retail and G&I segments in 2019.
35
DCF Approach
30 A discounted Cash Flow Analysis was used to estimate the intrinsic value of Innogy
due to the predictability of cash flows in relation to growth and profitability.
In order to determine EV we have chosen a 15 year forecast period from 2018 to 2032.
25 Our team believes that because of the duration of their concessions of about 15 to 20
Okt.16 Apr.17 Okt.17 Apr.18 years and the relative predictability of the Utility sector we are able to forecast year on
year over this comparatively longer period. Our group expects that by the end of this
period Innogy will reach the stage of sustainable growth.
Figure 28: Equity bridge
Retail: unpromising outlook
in EURm Decreasing revenues by 5% p.a. over the last 4 years with a high share of 76.6%
40,000 measured in terms of sales, Innogy’s future is relatively dependent on the performance
33,054 of this sector. Our revenue forecast is based on the estimated decline of customers in
30,000 the different countries over the last two years and the Gas and Electricity price
-
development over the next few years, both weighted equally. Heavy competition and
20,136 Dill. Shares
20,000 556M
the entrance of new companies will further have a negative impact on our forecast.
+ - =
Furthermore, because of these reasons we believe that the EBIT-Margin will also fall
10,000 from 2.5% to 1.8% over the next 5 years.
35.4
0 Grid & Infrastructure: Innogy’s stable backbone
EV
Total Cash & Minority Equity Share The second biggest contributor to revenue with a share of 34.6%, has a slightly more
debt Cash Interest Value Price
Equ.
promising outlook. Our team used the electricity sales growth of 0.8% p.a. and the gas
Sources: Company data, Team estimates sales growth of 3% p.a. to derive our G&I growth rate of around 1% for our forecast
horizon.
Figure 29: DCF estimate Renewables: strong growth and Innogy’s focused segment
in EURm
50,000 10.0% Innogy is one of the leading renewables company in Europe. Our group forecasted the
revenue based on the increase in Gwh of upcoming projects over the next few years
40,000 8.0% and afterwards we kept the growth constant. The strong historic revenue growth, its
30,000 6.0% respective outlook and the high estimated EBIT margin look promising. Even though
Innogy is presenting itself as a renewable company, this sector contributes only around
20,000 4.0%
3.3% to the total revenue.
10,000 2.0%
0 0.0% The DCF is most sensitive to the following factors, the derivations of which are
explained below:
2017
2013
2015
2027F
2019F
2021F
2023F
2025F
2029F
2031F
WACC
Revenue COGS EBIT margin % As a common discount rate, we used the WACC as this metric represent best the
Sources: Company data, Team estimates equity and debt holders interest.
Figure 30: DCF estimate

in EURm
2,000 07% To calculate Cost of Equity, we utilized the traditional CAPM, while we used the
06% unlevered Beta of our trading comparable universe and re-levered it with Innogy ́ s target
1,000 capital structure as we think this is more in-line with how risky similar companies are.
05%
0 04% Terminal Value
-1,000 03% Using the Perpetuity Growth Method, we derived a terminal value which represents
02% 49.76% of the total estimated Enterprise Value, making it a less substantial number
-2,000 compared to a shorter detailed forecast. The implied exit EV/EBITDA multiple after 15
01%
-3,000 00% years by using the PGM is 9.96x.
2013
2015
2017
2019F
2021F
2023F
2025F
2027F
2029F
2031F
DDM Approach
A Dividend Discount Model was used to estimate the value of the dividend payouts
which for a Utility company with strong and constant dividends is a common approach.
D&A Capex Capex % revenue We chose a dividend payout ratio of 80% based on company guidance and we also
Sources: Company data, Team estimates applied a 15 year forecast period for DDM. As a discount factor we used the Cost of
Equity of 10.1% to derive the discounted dividends. The Terminal Value has a weighting
WACC Analysis
of 54%. Our DDM share price is EUR 37.32.
Risk Free Rate 0,532% 20Y Bond
Relevered beta 0,78 Peer Group Sensitivity Analysis
Market Risk Premium 12,32% Additionally, we conducted a sensitivity analysis for our DCF using WACC and growth
Cost of Equity 10,10% rates as variables. For our DDM we used the NI growth rate and payout ratio. From this
Cost of Debt 4,86% Weighted Interest we derived a range of possible share prices from EUR 27.4 to 49.2 for DCF and EUR
Equity ratio 66% 33.8 to 40.6 for DDM.
Debt ratio 34%
Tax rate 25% Relative Valuation
WACC 7,9% Trading Multiples
Figure 31: DCF Model Sensitivity The peer group consists of major utility companies as well as companies that are
focused on renewables. We chose this approach because Innogy is neither a classic
WACC %
utility company nor a company focused solely on renewables. The selected competitors
5.9% 6.9% 7.90% 8.9% 9.9% were then chosen on the basis of their business model, market capitalization and risk
portfolio, leading to a peer group of eight companies. We then applied the industry-
Growth rate %
1.0% 57.3 43.8 34.0 26.7 20.9

relevant EV/EBIT multiple and EV/EBITDA for our comparable company analysis.
1.3% 59.9 45.4 35.1 27.4 21.4 Market
1.5% 62.8 47.2 36.3 28.3 22.0 in EURmn EV Cap EV/EBIT EV/EBITDA
Company Country Dec-17 Dec-17 2017 2018F 2019F 2017 2018F 2019F
1.8% 66.1 49.2 37.6 29.1 22.7 Innogy SE GER 31,071 18,153 16.6x 11.5x 7.2x 7.4x
2.0% 69.8 51.4 39.0 30.1 23.3 Enel SpA AU 108,980 51,916 11.1x 10.5x 9.9x 7.0x 6.7x 6.4x
Iberdrola SA ES 79,013 40,811 n.m. 15.1x 13.8x 10.8x 8.8x 8.2x
Engie SA IT 63,141 34,910 n.m. 11.4x 10.7x n/a 6.6x 6.3x
Figure 32: DDM Model forecast
Electricite de France FR 68,933 30,364 12.2x 11.6x 10.3x n/a 4.6x 4.3x
in EURm E.ON SE US 32,288 19,944 7.0x 11.1x 10.8x 6.5x 6.6x 6.3x
5.0 SSE PLC GB 22,922 15,082 10.0x 11.4x 11.0x 6.5x 7.9x 7.6x
300% Verbund AG GB 6,367 3,414 16.1x 13.8x 10.7x 7.1x 7.9x 6.7x
4.0 EVN AG GB 4,209 3,004 12.1x 12.5x 13.1x 5.8x 6.8x 7.0x
250% Median 47,714 25,154 11.6x 11.5x 10.7x 6.7x 6.8x 6.5x
3.0
Average 48,232 24,931 11.4x 12.2x 11.3x 7.3x 7.0x 6.6x
2.0 200%
M&A comps
1.0 150% The peer group consists of 4 deals that took place in recent years, due to limited data
availablity. The selected deals were chosen on the basis of the deal value, stake
0.0 100%
acquired and the seller’s business model and risk portfolio. We decided to not include
deals such as the recent Uniper takeover, as the business model of companies heavily
invested in fossil fuels is not comparable to Innogy’s business model.
EPS Payout Ratio DPS Transa-
Sources: Company data, Team estimates Announcement
ction EV Enterprise Value /
Figure 33: DDM Model Sensitivity Date Acquiror Name Target Name Stake % in EURm
LTM LTM
Revenue EBITDA
Growth rate %
May-17 PGE Polska Grupa PGE Energia Ciepla 100% 1,015 0.92x 4.06x
1.0% 1.3% 1.5% 1.75% 2.0% Jul-16 Endesa Enel Green Power 60% 2,036 n.a. n.a.
Payout ratio %
60.0% 26.2 27.1 28.0 29.0 30.0 Nov-14 Macquarie; Wren House Electrica de Viesgo 100% 2,500 n.a. n.a.
Dec-12 E.ON SE Enerjisa Enerji 50% 4,500 2.97x n.a.
70.0% 30.6 31.6 32.7 33.8 35.0 Aug-12 HERA ACEGAS 100% 552 1.02x 4.76x
80.0% 35.0 36.1 37.3 38.6 40.0 Dec-11 China Three Gorges Energias de Portugal 21% 29,199 2.06x 8.08x
Mar-11 Iberdrola Iberdrola Renovables 20% 12,914 5.76x 8.87x
90.0% 39.3 40.6 42.0 43.4 45.0
Median 2,500 2.06x 6.42x
100.0% 43.7 45.1 46.6 48.3 50.0 Average 7,531 2.55x 6.44x
10
Sum-of-the-parts valuation
We used sum-of-the-parts (“SOTP”) analysis to calculate values for Innogy’s equity by
summing the value of its individual business segments to arrive at the total EV. Equity
value was then calculated by deducting net debt and minority interest. In order to
calculate the segment EV we used comparable peer groups.
There are several reasons for that lower implied share price, if using the SOTP approach
to value Innogy. First of all it appeared difficult to find companies that are specialized in
only one of the three segments since utility companies usually operate a diversified
energy portfolio and generally serve more than one of the generation, network and retail
aspect along the supply chain. Second, the LTM EV/EBITDA multiples for the segments
were lower than the multiples from their last fiscal year. Further, forecasted EBITDA for
2019 and which the STOP relies on, is at EUR 3,170m.
in EURm SOTP Bridge

40,000
2,508 33,371
5,608 30,863
-
30,000
4,881 =
+
20,374 - 20,453
20,000 + =
11,105 Dill. Shares
1,813
556M
10,000
36.81
0
Add: Add: Add: EV Add: EV Total EV Less: Less: Equity Share
G&I Retail Renew- from from Net debt Minority Value Price
ables Segments SSE/Npower Interest
merger
7 Investment Risks
O1: Unsteady weather conditions and their impact on energy generation
Figure 34: Risk matrix capabilities (high likelihood, high impact)
Exposure: The wind level has considerable importance for Innogy, as the utilization of
Operational Risk
Political Risk the company's wind farms greatly depends on them. The wind levels in many countries
Market Risk in Europe were in line with the long-term avg. in 2017, but remained below that at some
important countries for Innogy. So this might impacts key onshore and offshore
generation sites in Innogy’s portfolio.
O1
High
O2 Mitigation: To mitigate wind level dependency, Innogy is farther going to invest more in
Solar energy projects. In early 2017, for instance, Innogy acquired Belectric Solar &
Battery Holding GmbH and concluded a contract with Overland Sun Farming in February
P1 2018.
Probability
Medium
O2: Capital expenditure may fall short of expectations and its impact on earnings
M1 (high likelihood, moderate impact)
Exposure: In 2018-20, Innogy will expand its CAPEX by continuing investing in the
organizations high potential businesses. However, prices paid for acquisitions may prove
to be too high in hindsight. In addition, markets may show a slower performance due to
M2 European saturation. Therefore, projects may be sold under their carrying amount.
Low
Mitigation: On the other hand, expectations may turn out very positively, for instance, if
the targeted CAPEX realize more profitability than originally assumed. Moreover, the
High organization is going to invest in promising business areas as e-mobility and renewable
Low Medium energies.
Impact on valuation: In our base DCF we assumed an CAPEX margin increase to 5.5%
Impact in 2018 with a moderate growth until 2021 and a slight rate decrease in 2022.
Sources: Team estimates
11
Figure 35: Risk factors M1: High level of competition in the retail business and its impact on revenue
(moderate likelihood, low impact)
Risk Mitigating Factors Exposure: The increase in competition in the company's core markets has a negative
impact on customer figures and realizable margins. A weak appearance on the market
Operational invest in new high potential can quickly lead to customer losses and a drop in earnings.
Risk segments Mitigation: To mitigate this risk, Innogy has to focus on securing the core business by
enhancing efficiency measures, expanding the core business by widening Innogy’s
Political Risk customer base and providing attractive packages for residential and commercial
customers such as Energy+ products and e-mobility.
Market Risk financial instruments
Business expanding core business M2: Changes in commodity prices can have an influence on business results (low
Risk likelihood, high impact)
Exposure: Commodity price include electricity and gas prices to the generation positions
Sources: Company guidance, team estimates in renewables, in the gas storage business. Such risks may also exist in the retail
business outside of fixed-price products. Commodity price risks in the retail business can
arise for its products, since Innogy can not totally pass on the company´s procurement
Figure 36: Electricity prices costs to its customers.
Mitigation: To mitigate the risk, the commodity price risks of the segments are hedged in
In EUR/kWh accordance with Group directives. Moreover, financial instruments such as options,
futures and swaps are used to hedge commodity positions.
35
Impact on value: Changes in commodity prices could reduce the companies EBIT in
30 2018 by c. EUR 20m.
25
P1: Changes in the regulatory regime, subsidy cuts and revenue cap adjustments
20 may negatively influence Innogy’s sizable regulated business segments
15 Exposure: Renewable energy initiatives are a cornerstone in most European
legislations. Nevertheless, Innogy needs to be aware of possible subsidy cuts and
10 increasingly competitive tender procedures. Likewise, long-term agreements among the
5 company and host countries may prove less reliable than anticipated as political tension
'10 '11 '12 '13 '14 '15 '16 '17 rises within the EU. Furthermore, remaining questions concerning revenue caps and
their specific parameters may adversely affect the networks segment’s profitability.
Ger: B2B prices UK: B2B prices
Ger: B2C prices UK: B2C prices
Figure 37: Innogy power generation

capacity by Division (in MW)
2%
9%
17%
50%
22%
Onshore Wind Offshore Wind

Hydro Other Renewables
Non-Renewables
12
8 Appendix
8.1 Financial tables

Balance Sheet in EURmn 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Assets 54,813 56,504 57,972 46,890 46,814 45,529 45,930 46,293 46,578
Current assets 20,386 20,855 19,737 10,651 10,312 8,626 8,522 8,394 8,383
Cash & Cash Equivalents 2,526 2,388 2,444 4,067 3,324 2,003 2,087 2,119 2,228
Accounts Receivable 17,416 17,666 16,913 5,557 5,910 5,564 5,389 5,241 5,129
Inventory 441 491 379 391 373 385 373 363 355
Prepaid
Expenses 3 0 1 53 53 21 21 20 20
Other current assets 0 310 0 583 652 652 652 652 652
Non-current assets 34,427 35,649 38,235 36,239 36,502 36,903 37,408 37,899 38,195
PP&E 16,980 17,309 18,308 17,954 18,361 18,762 19,267 19,758 20,054
Goodwill 10,343 10,501 10,974 10,658 10,191 10,191 10,191 10,191 10,191
Intangibles 1,255 1,194 1,204 1,051 1,156 1,156 1,156 1,156 1,156
Long Term Investments 2,882 2,889 2,692 2,959 3,053 3,053 3,053 3,053 3,053
Notes receivables 1,179 1,495 2,242 479 473 473 473 473 473
Other Long Term Assets 1,788 2,261 2,815 3,138 3,268 3,268 3,268 3,268 3,268
Equity & Liabilities 54,813 56,504 57,972 46,890 46,814 45,529 45,930 46,293 46,578
Total Equity 15,654 16,937 16,649 8,931 9,439 10,759 12,007 13,184 14,238
Common Stock n.a. n.a. n.a. 1,111 1,111 1,111 1,111 1,111 1,111
Unrealized Gains/Losses n.a. n.a. n.a. 85 85 85 85 85 85
Other Equity 15,654 16,937 16,649 -766 -618 -618 -618 -618 -618
Retained Earnings n.a. n.a. n.a. 8,501 8,861 10,181 11,429 12,606 13,660
Current liabilities 15,565 16,792 15,812 11,781 12,649 11,549 12,037 11,230 12,197
Accounts Payable 5,357 4,906 4,553 4,302 4,001 4,287 4,152 4,038 3,952
Accrued Expenses 726 692 726 1,163 1,127 832 806 784 767
Current Port. of LT
Debt/Capital Leases 171 113 1,019 110 1,218 127 776 105 1,174
Other Current liabilities 9,311 11,081 9,514 6,206 6,303 6,303 6,303 6,303 6,303
Non-current liabilities 23,594 22,775 25,511 26,178 24,726 23,220 21,886 21,880 20,144
Long term debt 13,633 215 11,875 11,717 13,211 13,211 13,211 13,211 13,211
Deferred Income Tax 820 772 904 521 542 542 542 542 542
Minority Interest 1,335 1,461 1,811 1,736 1,813 1,813 1,813 1,813 1,813
Other liabilities 7,806 20,327 10,921 12,204 9,160 7,654 6,320 6,314 4,578
Total liabilities 39,159 39,567 41,323 37,959 37,375 34,770 33,923 33,109 32,340
CF-S in EURmn 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Net Income after taxes 592 2,361 2,294 2,139 2,183 2,058 2,007 1,952 1,852
D&A 2,150 1,451 1,640 1,780 2,005 1,805 2,020 1,964 1,922
Deferred Taxes -65 -73 -77 -648 -43 -43 -43 -43 -43
Other non-cash items 674 -346 -1,912 -58 -560 -560 -560 -560 -560
Changes in Working Capital 342 74 210 -215 -177 -357 -27 -23 -17
Cash from Operating
Activities 3,693 3,467 2,155 2,998 3,408 2,903 3,397 3,291 3,154
Capital Expenditures -2,297 -2,059 -2,025 -1,833 -1,835 -2,206 -2,525 -2,455 -2,218
Other Investing Cash Flow
Items -257 -1,626 923 7,051 35 35 35 35 35
Cash from Investing
Activities -2,554 -3,685 -1,102 5,218 -1,800 -2,171 -2,490 -2,420 -2,183
Financing Cash Flow Items 1,305 1,474 -178 -7,199 -64 -64 -64 -64 -64
Total Cash Dividends Paid -1,357 -486 -1,017 -979 -1,328 -737 -759 -775 -798
Issuance (Retirement) of Debt,
Net -952 -639 -398 1,136 220 0 0 0 0
Cash from financing
Activities -1,004 349 -1,593 -7,042 -1,172 -801 -823 -839 -862
Foreign Exchange Effects -3 10 15 -21 9 0 0 0 0
Net Change in Cash 132 141 -525 1,153 445 -70 84 32 109
Net Cash - Beginning Balance 727 859 1,000 475 1,628 2,073 2,003 2,087 2,119
Net Cash - Ending Balance 859 1,000 475 1,628 2,073 2,003 2,087 2,119 2,228
13
8 Appendix
Income Statement in EURmn 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Sales 46,029 43,506 43,456 41,549 41,119 40,105 38,841 37,773 36,969
(-) GOGS -37,320 -35,028 -34,525 -32,515 -32,454 -31,942 -30,935 -30,084 -29,444
Gross Profit 8,709 8,478 8,931 9,034 8,665 8,163 7,906 7,689 7,525
(-) SG&A -3,261 -3,144 -3,102 -3,267 -3,433 -3,021 -2,926 -2,845 -2,785
(-) Other Operating Expenses -1,827 -1,070 -1,201 -1,331 -411 -497 -188 -180 -255
EBITDA 3,621 4,264 4,628 4,436 4,821 4,645 4,792 4,663 4,486
(-) D&A -2,150 -1,451 -1,640 -1,780 -2,005 -1,805 -2,020 -1,964 -1,922
EBIT 1,471 2,813 2,988 2,656 2,816 2,841 2,773 2,699 2,563
(-) Interest exp. -683 -685 -606 -746 -502 -701 -701 -701 -701
(+) Interest income 355 756 772 644 368 629 629 629 629
Net Income before Taxes 1,143 2,884 3,154 2,554 2,682 2,769 2,701 2,627 2,492
(-) Taxes -551 -523 -860 -415 -499 -711 -694 -675 -640
Net Income after Taxes 592 2,361 2,294 2,139 2,183 2,058 2,007 1,952 1,852
8.2 Valuation
Cash & Diluted

Base Case Total Cash Minority Equity Shares Share
EV/EBIDA EV/EBIT EV Weight % Debt Equ. Interests Value Out. Price
DCF 7.7x 11.9x 33,097 35% 14,429 3,324 1,813 20,179 556 36.32
DDM 7.8x 12.1x 33,650 35% 14,429 3,324 1,813 20,732 556 37.32
CCA 7.6x 11.7x 32,759 20% 14,429 3,324 1,813 19,841 556 35.71
CTA 6.2x 9.5x 26,467 10% 14,429 3,324 1,813 13,549 556 24.39
SOTP 7.8x 12.0x 33,371 0% 14,429 3,324 1,813 20,453 556 36.81
Total EV 32,560 100% 14,429 3,324 1,813 19,642 556 35.36
8.2.1 DCF – Base Case

DCF - Base Case 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F TV
Total Revenue 46,029 43,506 43,456 41,549 41,119 40,105 38,841 37,773 36,969 36,214 35,712 35,221 34,761 34,331 33,931 33,753 33,559 33,380 33,216
Retail 39,136 35,819 35,068 32,554 31,492 30,177 28,668 27,378 26,283 25,232 24,475 23,740 23,028 22,337 21,667 21,234 20,809 20,393 19,985
G&I 12,892 13,044 13,225 14,040 14,215 14,358 14,504 14,651 14,801 14,953 15,107 15,263 15,422 15,583 15,746 15,912 16,081 16,252 16,425
Renewables 916 825 1,158 1,097 1,362 1,446 1,491 1,515 1,617 1,726 1,844 1,947 2,058 2,175 2,300 2,433 2,536 2,645 2,759
(-) COGS 37,320 35,028 34,525 32,515 32,454 31,942 30,935 30,084 29,444 28,843 28,442 28,052 27,685 27,343 27,024 26,883 26,728 26,585 26,455
Gross Profit 8,709 8,478 8,931 9,034 8,665 8,163 7,906 7,689 7,525 7,371 7,269 7,169 7,076 6,988 6,907 6,871 6,831 6,794 6,761
(-) SG&A 3,261 3,144 3,102 3,267 3,433 3,122 3,023 2,940 2,877 2,819 2,780 2,741 2,706 2,672 2,641 2,627 2,612 2,598 2,585
(-) Other opex 2,515 1,688 1,879 1,767 1,915 1,769 1,713 1,666 1,631 1,598 1,575 1,554 1,533 1,514 1,497 1,489 1,480 1,472 1,465
EBITDA 2,933 3,646 3,950 4,000 3,317 3,273 3,170 3,082 3,017 2,955 2,914 2,874 2,837 2,802 2,769 2,754 2,739 2,724 2,711
(-) D&A 1,343 1,297 1,365 1,455 1,467 1,365 1,322 1,286 1,258 1,233 1,215 1,199 1,183 1,168 1,155 1,149 1,142 1,136 1,131
EBIT 1,471 2,813 2,988 2,656 2,816 2,841 2,773 2,699 2,563 2,585 2,601 2,623 2,647 2,674 2,703 2,727 2,754 2,782 2,811
Taxes 551 523 860 415 499 671 578 573 512 535 553 545 550 553 563 569 573 579 585
(+) D&A 1,343 1,297 1,365 1,455 1,467 1,365 1,322 1,286 1,258 1,233 1,215 1,199 1,183 1,168 1,155 1,149 1,142 1,136 1,131
(-) Chg. In NWC 782 782 (545) (11,478 672 (357) (27) (23) (17) (16) (11) (10) (10) (9) (8) (4) (4) (4) (3)
(-) CAPEX 2,297 2,059 2,025 1,833 1,835 2,206 2,525 2,455 2,218 1,992 1,964 1,937 1,912 1,888 1,866 1,688 1,678 1,669 1,661
Unlevered FCF (9) 900 2,288 13,666 1,815 2,125 1,717 1,658 1,773 1,957 1,844 1,877 1,898 1,924 1,944 2,128 2,152 2,174 2,197 35,192
WACC 7.9%
Growth Rate 1.5%
Total PV of FCF 16,651
PV of TV 16,446 WACC
Growth %
% of EV 50% 5.9% 6.9% 7.9% 8.9% 9.9%

Enterprise Value 33,097 1.00% 57.3 43.8 34.0 26.7 20.9
Less: Net Debt 11,105 1.25% 59.9 45.4 35.1 27.4 21.4
Less: Minor. Int. 1813 1.50% 62.8 47.2 36.3 28.3 22.0
Total Equ. Value 20,179 1.75% 66.1 49.2 37.6 29.1 22.7
Dilu. Shares Out. 556 2.00% 69.8 51.4 39.0 30.1 23.3
Target Price 36.32
DCF Assumptions
60,000 30%
40,000 20%
20,000 10%
0 0%
13 14 15 16 17 18F 19F 20F 21F 22F 23F 24F 25F 26F 27F 28F 29F 30F 31F
Retail G&I Renewables Gross Profit % EBITDA % EBIT %
14
8 Appendix
8.2.2 Working Capital Schedule
Working Capital
Schedule 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F
Current assets
A/R 17,416 17,666 16,913 5,557 5,910 5,564 5,389 5,241 5,129 5,024 4,955 4,886 4,823 4,763 4,708 4,683 4,656 4,631 4,608
Inventories 441 491 379 391 373 385 373 363 355 348 343 338 334 330 326 324 322 321 319
Prepaid Expenses 3 0 1 53 53 21 21 20 20 19 19 19 18 18 18 18 18 18 18
Total curr. assets 17,860 18,157 17,293 6,001 6,336 5,971 5,783 5,624 5,504 5,391 5,317 5,244 5,175 5,111 5,052 5,025 4,996 4,969 4,945
Current liabilities
Accounts Payable 5,357 4,906 4,553 4,302 4,001 4,287 4,152 4,038 3,952 3,871 3,817 3,765 3,716 3,670 3,627 3,608 3,587 3,568 3,551
Accrued Expenses 726 692 726 1,163 1,127 832 806 784 767 752 741 731 722 713 704 701 697 693 689
Total current
liabilities 6,083 5,598 5,279 5,465 5,128 5,119 4,958 4,822 4,719 4,623 4,559 4,496 4,437 4,382 4,331 4,309 4,284 4,261 4,240
Working Capital 11,777 12,559 12,014 536 1,208 851 824 802 785 769 758 748 738 729 720 716 712 709 705
Chg. In NWC 782 782 -545 11,478 672 -357 -27 -23 -17 -16 -11 -10 -10 -9 -8 -4 -4 -4 -3
% of Sales 1.7% 1.8% -1.3% -7.6% 1.6% -0.9% -0.1% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Working Capital
Drivers
DSO 138 148 142 49 52 51 51 51 51 51 51 51 51 51 51 51 51 51 51
DIH 4 5 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
Pre. Exp. & Other% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
DPO 52 51 48 48 45 49 49 49 49 49 49 49 49 49 49 49 49 49 49
Accr. Exp. % sales 2% 2% 2% 3% 3% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%
Other Liab. % sales 20% 25% 22% 15% 15% 17% 15% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%
8.2.3 DCF Parameters

Cost of Equity
For calculating Cost of Equity we used the CAPM with the comparable companies method for computing the firm-specific beta. The CAPM
formula is as follows:
𝑟𝐸 = 𝑟𝑓 + 𝛽 ∗ (𝐸 𝑅𝑀 − 𝑟𝑓 )
As risk-free rate 𝑟𝑓 we used the German 20-year government bond yield. In order to calculate the market return, we computed the 2-year historical
returns of the DAX 30 as market proxy using weekly data points and annualized it.
We used a comparable company market-based beta, instead of computing a simple-regression with DAX 30 and Innogy’s stock performance. For
this, we unlevered the beta of our peer group according to its market-based capital structure (Market Cap / Net Debt), took the Median unlevered beta
and re-levered it with Innogy’s target capital structure. We assumed that Innogy is currently operating at its target capital structure:
𝐵𝐿 𝑀𝑎𝑟𝑘𝑒𝑡 𝑐𝑎𝑝𝐴𝑔𝑟𝑎𝑛𝑎
𝐵𝑈 = 𝑀𝑎𝑟𝑘𝑒𝑡 𝐶𝑎𝑝 𝐵𝑅𝐿 = 1 + 1 − 𝑇 ∗
𝑁𝑒𝑡 𝐷𝑒𝑏𝑡𝐴𝑔𝑟𝑎𝑛𝑎
(1+ 1−𝑇 ∗
𝑁𝑒𝑡 𝐷𝑒𝑏𝑡
The peer group selection on multiple criteria including industry, size, business description filtering and business model selection. This selection
process leads to a number of 8 peers for Innogy.
Peer Group Selection Innogy Beta

Screening
Criteria Filter in EUR Count
Industry Electric utility n.a. 767
767
Size Company Market Cap. >3.000 mn 109
Business DescriptionElectric utility or renewable utility n.a. 14
According to Innogy’s business
Business Model n.a. 8
model
Source: Thomson Reuters, Team filtering
- 658
- 95 6
-
Industry Size Business Business
Description Model
15
8 Appendix
Beta Market Net Tax Unlevered

Company Name 2Y weekly Cap. Debt Rate Beta
Enel SpA 0,92 51.916 57.064 25% 0,51
Iberdrola SA 0,78 40.811 38.202 25% 0,46
Electricite de France SA out 30.364 38.569 25% n.m.
E.ON SE 1,26 19.944 12.344 25% 0,86
SSE PLC 0,95 15.082 7.840 25% 0,68
Verbund AG 0,48 3.414 2.954 25% 0,29
EVN AG 0,39 3.004 1.205 25% 0,30
Engie SA 0,91 34.910 28.231 25% 0,57
Median 0,91 25.154 20.287,50 25% 0,51
Unlevered Target Target Average Relevered

Target Company Beta Mcap Net Debt Tax rate Beta
Innogy SE 0,63 18.153 12.918 25% 0,78
Source: Thomson Reuters, Team Calculations
Appendix B1: Valuation: DCF Parameters – Cost of Capital
Cost of Equity
Risk Free Rate 0.532% 20-Y Gov. Bond
2-Y relvered Beta 0.78 Peer Group
Exp. Market Return 12.9% DAX Index
Cost of Equity 10.1%
Source: Team Calculations

Cost of Debt
We based our Cost of Debt calculations on Innogy’s debt schedule as of AR2017. Innogy has EUR 13.211m total long-term debt outstanding and its
average interest rate (fixed and variable) amounts to 4,86% as of AR2017. We calculated its average interest rate by their weight.
Debt Schedule Weighted
Amount Weighted % Coupon % Weighted Coupon Maturity Years Maturity
1.007 8% 5,13% 0,41% 2018 0 0,00
1.062 8% 6,63% 0,56% 2019 1 0,08
761 6% 1,88% 0,11% 2020 2 0,12
702 6% 6,50% 0,36% 2021 3 0,17
1.171 9% 6,50% 0,60% 2021 3 0,28
605 5% 5,50% 0,26% 2022 4 0,19
593 5% 5,63% 0,26% 2023 5 0,23
841 7% 3,00% 0,20% 2024 6 0,40
744 6% 1,25% 0,07% 2025 7 0,41
839 7% 6,25% 0,41% 2027 9 0,60
942 7% 5,75% 0,43% 2030 12 0,89
727 6% 3,80% 0,22% 2033 15 0,86
42 0% 4,75% 0,02% 2033 15 0,05
633 5% 3,50% 0,17% 2034 16 0,80
512 4% 6,13% 0,25% 2037 19 0,77
1.212 10% 4,76% 0,46% 2039 21 2,01
175 1% 3,50% 0,05% 2040 22 0,30
100 1% 3,55% 0,03% 2042 24 0,19
12.668 100% CoD 4,86%
Source: Company information, Team calculations
Tax rate
An examination of taxes paid in previous years almost equals 2%, we also based our valuation on this rate.
Weighted Average Cost of Capital

For computing the WACC, we weighted the Cost of Equity (CoE) and Cost of Debt (CoD) according to the company‘s Equity and Debt ratio:
𝐸𝑞𝑢𝑖𝑡𝑦 𝐷𝑒𝑏𝑡
𝑊𝐴𝐶𝐶 = 𝑟𝐸 ∗ + (1 − 𝑇) ∗ 𝑟𝐷 ∗
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
16
8 Appendix
We finally calculated the Cost of Equity as follows:
WACC Analysis
Risk Free Rate 0,532%
2-Y relevered Beta 0,78
Market Risk Premium 12,32%
Cost of Equity 10,10%
Cost of Debt 4,86%
Equity ratio 66%
Debt ratio 34%
Tax rate 20%
WACC 7,9042%
Growth Rate (g)
Since the European economy is forecasted to grow at a CAGR of 1.4% until 2022 (and inflation at 2.0%), we set our growth assumption at 1.5% for
terminal value calculation.
GDP growth and inflation rate Germany and Western Europe

3.5%
3.0%
2.5%
1.8% 1.6%
2.0% 1.6% 1.5%
1.5% 1.4% 1.3%
1.5% 1.2% 1.2%
1.0% 0.6%
0.5%
0.0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
GDP Germany GDP United Kingdom GDP Western Europe Germany inflation rate
8.2.4 DDM Cost of Equity

Risk Free Rate 0.532% 20Y Bond
Dividend Growth Growth Growth Share Re-levered beta 0.78 Peer Group
Scenario 2017 (1-3) (4-6) (7-10) g (TV) Price Market Risk Premium 12.32%
growth rate 1.80 5.0% 3.0% 2.0% 1.5% 37.32 Cost of Equity 10.10%
Scenario 1 (m) 2017a 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e TV
EPS 1.58 1.66 1.71 1.74 1.80 1.83 1.87 1.90 1.92 1.95 1.98 2.01 2.04 2.07 2.10 2.14
growth rate % 5.0% 3.0% 2.0% 3.0% 2.0% 2.0% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Dividend payout
(mn) 1.80 1.33 1.37 1.39 1.44 1.46 1.49 1.52 1.54 1.56 1.59 1.61 1.63 1.66 1.68 1.71 20.2
Discount Factor 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1%
Dividend
discounted 1.21 1.13 1.04 0.98 0.91 0.84 0.77 0.71 0.66 0.61 1.61 1.63 1.66 1.68 1.71
DPS 37.32
Market Value 20,732 DPS, EPS, Payout Ratio
5.00
4.00
3.00
2.00
1.00
0.00
13 14 15 16 17 18F 19F 20F 21F 22F 23F 24F 25F 26F 27F 28F 29F 30F 31F 32F
DPS EPS Payout Ratio

8 Appendix
8.2.5 Sum-Of-The-Parts (SOTP) Analysis

RAB Used
EV EBITDA Share EBITDA EV/EBITDA RAB Premium EV/EBITDA
in EURmn 2020F 2017 % 2019F 2019F in EURbn % 2018F
G&I
Germany 15,160 2,051 71% 1,425 7.6x 9.0 40% 10.6x
Eastern Europe 5,214 823 29% 572 7.6x 4.5 20% 9.1x
Total 20,374 2,874 1,997 7.6x 13.5 10.2x
Retail
Germany 2,485 489 49% 339 7.3x - - 7.3x
UK 168 33 3% 23 7.3x - - 7.3x
NL/BE 1,204 237 24% 164 7.3x - - 7.3x
Eastern Europe 1,024 246 24% 171 6.0x - - 6.0x
Total 4,881 1,005 697 7.0x 7.0x
Renewables
Quasi-regulated 4,124 463 67% 317 13.0x - - 13.0x
Unregulated 1,485 231 33% 158 9.4x - - 9.4x
Total 5,608 694 476 11.8x 11.8x
Total SOTP EV 30,863
Added EV from Npower/SSE merger 2,508
Total EV 33,371
Net Debt 11,105
Minority interest 1,813
Equity Value 20,453
Dil. Shares Outstanding 556
Share Price 36.81
8.2.5 Npower/SSE merger

FX EUR/GBP 29.05.18 0.8733
Generation Total
Mcap EV Capacity Output EBIT EBITDA EV/EBITDA
Name Unit 2018 2018 MW GWh FY17 FY18F FY19F FY17 FY18F FY19F FY17 FY18F FY19F
Npower EUR 11,976 26,282 4,366 5,103 5,249 4.4x 5.2x 5.0x
SSE PLC EUR 14,431 23,979 2,695 2,572 2,580 8.3x 10.0x 9.3x
EPM and Electricity
Generation Pound 736 930
Gas Production Pound -201 -57
Gas Storage Pound -37 -36
Wholesale 10,643 26,296 498 403 837
Energy Supply Pound 313 328
Energy-related Services Pound -20 -8
Enterprise Pound 17 62
Retail 310 328 382
Total Pound 808 1,219 1,230 1,167
growth y/y 1% -5%
Total EUR 705 1,064 1,074 1,019
Combined EUR 26,406 50,260 5,430 6,178 6,268 6.3x 7.6x 7.2x
EV/EBITDA Multiple x 7.2x
Added EV to Innogy EUR 7,289
Stake % 34.4%
EV added to Innogy 2,508
18
8 Appendix
8.2.5 SOTP Peer Group

EV/EBITDA
Identifier Company Name TRBC Activity industry Country LTM NTM 2019F 2020F
Grid & Infrastructure
EVNV.VI EVN AG Multiline Utilities AUT 7.4x 6.9x 7.3x 7.2x
EONGn.DE E.ON SE Multiline Utilities GER 11.2x 6.7x 5.9x 5.1x
GAS.MC Gas Natural SDG SA Natural Gas Utilities (NEC) SP 6.2x 5.2x 8.7x 8.2x
SSE.L SSE PLC Electric Utilities (NEC) UK 9.3x 8.8x 9.1x 8.7x
NG.L National Grid PLC Multiline Utilities UK 10.7x 10.5x 10.6x 10.1x
ACE.MI Acea SpA Multiline Utilities IT 8.3x 6.0x 5.9x 5.7x
ENEI.MI Enel SpA Renewable Utilities IT 7.1x 6.9x 6.6x 6.4x
IREE.MI Iren SpA Multiline Utilities IT 7.3x 6.6x 6.2x 6.0x
IBE.MC Iberdrola SA Electric Utilities (NEC) SP 10.3x 8.5x 8.1x 7.7x
Median 8.3x 6.9x 7.3x 7.2x
Average 8.6x 7.3x 7.6x 7.2x
Retail
GAS.MC Gas Natural SDG SA Natural Gas Utilities (NEC) SP 6.2x 5.2x 8.7x 8.2x
RWEG.DE RWE AG Multiline Utilities GER 5.5x 5.1x 5.0x 6.0x
UN01.F Uniper SE Multiline Utilities GER 7.8x 7.5x 6.6x 6.3x
SSE.L SSE PLC Electric Utilities (NEC) UK 9.3x 8.8x 9.1x 8.7x
Median 7.0x 6.4x 7.6x 7.3x
Average 7.2x 6.6x 7.3x 7.3x
Renewables
VLTSA.PA Voltalia SA Renewable Utilities FR n.a. 9.5x 12.2x 8.6x
AVENT.BN Aventron AG Renewable IPPs CH 13.5x 12.2x 13.4x 12.5x
EVNV.VI EVN AG Multiline Utilities AUT 7.4x 6.9x 7.3x 7.2x
EONGn.DE E.ON SE Multiline Utilities GER 11.2x 6.4x 5.9x 5.1x
ANA.MC Acciona SA Renewable Utilities SP 7.6x 7.3x 7.2x 7.0x
VERB.VI Verbund AG Electric Utilities (NEC) AUT 7.9x 8.0x 12.9x 11.5x
EDP.LS EDP Energias de Portugal SA Electric Utilities (NEC) Portugal 9.6x 8.8x 8.5x 8.3x
ERG.MI ERG SpA Electric Utilities (NEC) IT 9.7x 7.9x 7.9x 7.6x
ENEI.MI Enel SpA Renewable Utilities IT 7.1x 6.2x 6.6x 6.4x
AA4.MI Falck Renewables SpA Electric Utilities (NEC) IT 9.1x 7.5x 7.3x 6.4x
SLRS.MC Solaria Energia y Medio Ambiente SA Renewable IPPs SP 23.7x 18.9x 15.3x
EDPR.LS EDP Renovaveis SA Renewable IPPs SP 8.6x 8.4x 8.1x 7.7x
Solarparken n.a. n.a. 8.7x 8.9x
Median 9.1x 7.9x 8.0x 7.6x
Average 10.5x 9.0x 9.4x 8.0x
8.2.6 Relative Valuation – Trading Comps / Peer Group Benchmarking

Revenue EBITDA EBIT Net
CAGR CAGR CAGR Div. Yield ROA ROE Debt/EBITDA
Company Name Country 15-'17 15-'17 15-'17 2017 2017 2017 2017
Innogy SE GER 2.24% 7.84% 7.25% 4.45% 3.50% 8.00% 3.84
European Peers
EDF FR 1.27% -7.38% -11.91% 3.97% 1.20% 6.90% 1.95x
Enel SpA IT 4.80% 8.13% 8.88% 4.99% 4.60% 11.70% 2.62x
Engie SA FR 1.38% -3.13% -4.47% 5.02% 1.00% 2.80% 2.48x
E.ON GER -0.85% -30.39% -35.28% 3.27% 7.70% 150.50% 3.22x
SSE PLC UK -11.87% 19.42% 18.63% 6.66% 7.70% 14.30% 3.43x
Iberdola UK 4.84% 7.99% 2.08% 5.12% 1.90% 8.20% 4.28x
Verbund AG AUT 4.10% 5.25% 7.19% 1.50% 3.30% 6.40% 2.26x
EVN AG AUT 4.71% 16.18% 32.58% 2.75% 5.00% 9.50% 1.57x
Min. -11.87% -30.39% -35.28% 1.50% 1.00% 2.80% 1.57x
25% percentile 0.74% -4.20% -6.33% 3.14% 1.73% 6.78% 2.18x
Median 2.74% 6.62% 4.63% 4.48% 3.95% 8.85% 2.55x
Mean 1.05% 2.01% 2.21% 4.16% 4.05% 26.29% 2.73x
75% percentile 4.73% 10.14% 11.32% 5.04% 5.68% 12.35% 3.27x
Max. 4.84% 19.42% 32.58% 6.66% 7.70% 150.50% 4.28x
19
8 Appendix
EURm Enterprise Equity

Country Beta EV / EBIT EV / EBITDA
Company Value Value
31.12.2017 31.12.2017 2017 2018F 2019F 2020F 2017 2018F 2019F 2020F
Innogy SE GB 31,071 18,153 0.63 16.62 x 11.46 x 11.44 x 11.31 x 7.17 x 7.42 x 7.31 x 7.17 x
Enel SpA AU 108,980 51,916 0.92 11.13 x 10.51 x 9.88 x 9.46 x 6.96 x 6.70 x 6.37 x 6.15 x
Iberdrola SA ES 79,013 40,811 0.78 29.13 x 15.11 x 13.90 x 13.24 x 10.80 x 8.78 x 8.22 x 7.82 x
Electricite de
FR 68,933 30,364 out 12.23 x 11.62 x 10.33 x 9.57 x n/a 4.62 x 4.34 x 4.05 x
France SA
E.ON SE US 32,288 19,944 1.26 7.02 x 11.12 x 10.76 x 10.36 x 6.52 x 6.62 x 6.34 x 6.17 x
SSE PLC GB 22,922 15,082 0.95 10.03 x 11.35 x 11.01 x 10.91 x 6.47 x 7.90 x 7.63 x 7.55 x
Verbund AG GB 6,367 3,414 0.48 16.12 x 13.80 x 10.71 x 9.20 x 7.08 x 7.88 x 6.72 x 6.09 x
EVN AG GB 4,209 3,004 0.39 12.14 x 12.47 x 13.11 x 13.05 x 5.83 x 6.82 x 6.97 x 6.89 x
Engie SA IT 63,141 34,910 0.91 22.40 x 11.44 x 10.71 x 10.14 x n/a 6.61 x 6.32 x 6.11 x
Median 32,288 19,944 0.85 12.23 x 11.46 x 10.76 x 10.36 x 6.96 x 6.82 x 6.72 x 6.17 x
Average 46,325 24,177 0.79 15.20 x 12.10 x 11.32 x 10.81 x 7.26 x 7.04 x 6.69 x 6.44 x
8.3 List of recent news of Innogy

May 10th 2018: innogy Boards Submit Reasoned Statement Concerning E.ON/RWE Transaction
The executive board and the supervisory board do not give a recommendation to innogy’s shareholders. Both believe that the offer
is fair in absolute terms but a definitive assessment of the relative value is currently not possible. Uwe Tigges, CEO of Innogy SE is
“extremely concerned that the job cuts planned by E.On will be unilaterally pursued to the disadvantage of the Innogy employees.”
Other questions concerning the integration process and innogy SE’s brand value are among the most fiercely debated.
April 27th 2018: Takeover Offer for innogy SE by E.ON Verwaltungs SE Published
E.ON Verwaltungs SE published its cash offer for innogy’s no-par value bearer shares at EUR36.76. In addition, innogy’s
shareholders will receive dividend payments for fiscal year 2018, which are expected to amount to EUR1.64 per share.
April 24th 2018: Four Supervisory Board Members Elected at Annual General Meeting
Erhard Schipporeit, who had previously been appointed to the supervisory board by the Essen district court, was elected as
shareholder representative and chairman of the board. Monika Krebber, Markus Sterzl and Jürgen Wefers will act as employee
representatives.
April 3rd 2018: GBP1.5B Offshore Wind Farm “Galloper” Switches on all Turbines
The project was completed within budget and ahead of schedule since it began in November 2016. All 56 6.3MW turbines are now
generating enough renewable electricity to power 380,000 homes. The project is expected to run for the next 20 years.
March 26th 2018: innogy takes 300MW share in “Dublin Array” Offshore Wind Farm Project
The German company’s Irish subsidiary established a strategic partnership with Saorgus Energy to develop a 600MW offshore wind
project in Ireland. The next planning phase will be led by innogy.
March 15th 2018: innogy acquires Italian onshore wind park “Deliceto”
Following this acquisition innogy Italia now has a total wind energy capacity of 90MW. Innogy and the Italian seller Imprese e
Sviluppo have agreed to keep the transaction price confidential.
February 15th 2018: innogy Acquires Croatian Gas Grid and Retail Company Montcogim-Plinara
Moncogim-Plinara’s reported 2016 revenues of EUR11.4M, supplying 11,000 customers. As a result of the acquisition Innogy now
becomes the third-largest gas utility company in Croatia. The purchase price was kept confidential.
February 14th 2018: Expansion of Solar Business in Australia
Innogy SE acquires two large scale solar development projects from Overland Sun Farming in Australia. Projects “Limondale” and
“Hillston”, located in New South Wales, have a combined capacity of 460MW. Terms and conditions of the transaction will be kept
confidential but the planned investment volume will total more than EUR400M. innogy’s subsidiary BELECTRIC will be in charge of
construction, operation and maintenance for both projects.
January 1st 2018: Project Pipline Totals 5,000MW of Future Renewable Energy Capacity
Growth projects include the 860MW Triton Knoll offshore wind project in the UK, 400MW of wind energy projects in Thuringia,
Germany and an onshore wind pipeline in the US totaling 2,000MW. These and other projects are in various stages of
development. Additionally, innogy will continue to invest in photovoltaics as a key area for growth.
December 22nd 2018: City of Hürth signs Concession for the Supply of Energy until 2037
Energieversorung Hürth GmbH won the tender procedure and will lease the concession rights to Westnetz, a subsidiary of innogy
SE. innogy also holds a 24.9% stake in Energieversorgung Hürth GmbH.
20
Disclosures:
Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might
bias the content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:

The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject
company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the
author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or
completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This
information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report
should not be considered to be a recommendation by any individual affiliated with WUTIS – Trading and Investment Society with
regard to this company’s stock.
21
Innogy AG
Equity Research
Target Price: € 35.36

Current Price: € 35.97
Downside Potential: -1.7%
Recommendation: HOLD
Investment Horizon: 1 Year
Vienna, June 15, 2018
- 0 - | Valid until 30/06/2018 © Equity Research / wutis

Team – Overview
Equity Research
Lukas Parham Jan Jehona Thomas Johannes

Weise Allboje Tanson Idritzi Unterholzner Streihammer
Director Associate Analyst Analyst Analyst Analyst
 Financial Analysis
 Task distribution  Strategy
 Competitive Positioning  Industry  DCF & DDM Analysis  Risk Analysis
 Valuation and  Industry
 Risk Analysis  Deal Rationale  Valuation  Competitive Positioning
Story guideline  Financial Analysis
 Conclusion
 BSc. (WU) – 2nd Sem.

 BSc. (WU) – 7th Sem.  BSc. (WU) – 6th Sem.  BSc. (WU) – 7th Sem.  BSc. (WU) – 4th Sem.  BSc. (WU) – 7th Sem.
 BSc. Pharma – 4th Sem.
Innogy Stock Price Performance
An underperforming stock with very limited upside due to E.ONs takeover offer
Price performance
130%
Innogy will be acquired at

€36,76 per share thus
120% leaving a 2.2% Merger-
- 22,7% rel. perf.

Arbitrage potential
According to our non-merger
calculation, Innogys intrinsic
value is at 35.36€ per share
110%
€35.97 Current Share Price

100% €35.36 Target Share Price
90%
80%
Okt-2016 Jän-2017 Apr-2017 Jul-2017 Okt-2017 Jän-2018 Apr-2018
C.DAX IGY.SE

Innogy’s Investment Rational
Well positioned in utilities industry, but faces external pressure and uncertainty
1 2 3 4 5 6 7
Key investment highlights 1
Innogy further strengthens focus on its high potential renewables

segment, with margins expanding and OpEx declining
Smart technology solutions and new data-driven operating units

Regulatory Strong focus
environment on renewables
likely to help Innogy tackle predicted future segment decline
6 1 3
High dividend yield of 4.5% compared to both,
Innogy’s peers and broader market
5 2
4
Increased risk Digital disruption
exposure Upcoming uncertainties regarding post-merger integration,
4 3 especially in layoffs and brand identity
5
Questionable project pipeline, oversupply in European renewables
combined with tight project schedules leading to increased risk
E.ON / RWE High dividend yield exposure and potential disaster
Deal
6
Possibility of major negative impacts e.g. decreasing wholesale
electricity prices based on increasing competition due to
”Energiewende” legislation

3
1 Executive Summary 3
2 Business Description 5
3 Industry Overview & Outlook 13
4 Financial Analysis 16
5 Valuation Analysis 19
6 Risk Analysis 25
7 Appendix Business Description 27

Company Overview
The biggest operator of electricity distribution networks in Germany
1 2 3 4 5 6 7
Business Description
 Headquarter: Essen, Germany

 Employees: >40,000 employees
 Market Cap: EUR 1,510bn
 Ticker: IGY:DE, since October 2016 listed on Frankfurt Stock Exchange Off- and onshore Wind Power Hydro Power
 Renewables: focus is on onshore and offshore wind and hydroelectric power
 Grid and Infrastructure: electricity and gas distribution network
 Retail: sale of electricity and gas, innovative energy solutions
Onshore
Grid Wind Power
and Infrastructure Retail
EURm 2013A 2014A 2015A 2016A 2017A

Revenue 48,589 45,681 45,568 43,611 43,139
Shareholder Structure Geographic Distribution
% growth n.a. -6.0% -0.2% -4.3% -1.1%
COGS 37,320 35,028 34,525 32,515 32,454
% margin 76.8% 76.7% 75.8% 74.6% 75.2% <1%
EBITA 5,493 5,821 6,062 6,062 5,337 18% 17%
% margin 11.3% 12.7% 13.3% 13.9% 12.4%
EBIT 3,343 4,370 3,050 2,735 2,816 5%
% margin 6.9% 9.6% 6.7% 6.3% 6.5%
Net Income 664 1,467 1,613 1,513 778 18% 65%
% margin 1.4% 3.2% 3.5% 3.5% 1.8%
EV/EBITDA n.a. n.a. n.a. 7.6x 8.6x
77%
ROE % n.a. 9.0% 9.6% 11.8% 8.5%
Dividend Yield % 3.55% 4.10% 4.47% 4.97% 3.77%
Net Debt 17,337 (724,6) 13,315 9,983 15,496 RWE Germany United Kingdom
Black Rock Other EU Rest of Europe
Equity 15,654 16,937 16,649 8,931 9,439 Other institutioal investors
Source: Company information, Thomson Reuters, Team analysis Private investors Other

Operating Performance
Decarbonisation, decentralisation and digitalisation as the main three key trends
1 2 3 4 5 6 7
EURm
11,000 16%
EBIT & Revenue 10,500 15%
contribution 10,000
14%
9,500
Grid & Infrastructure 13%
9,000
9% 12%
8,500
8,000 11%
3% 2016 2018F 2020F 2022F
Electricity sales Gas sales EBIT margin %
25% EURm
30%
15,000 2.2%
67% 10,000 2.0%
Retail
66% 5,000 1.8%
0 1.6%
2016 2018F 2020F 2022F
Gas Others EBIT margin
Revenue contribution
EURm
1,000 40%
EBIT contribution
750 40%
500 39%
Renewables
250 39%
0 38%
2016 2017 2018F 2019F 2020F 2021F 2022F
Offshore Onshore Solar
Source: Company information, Thomson Reuters, Team analysis
Hydro EBIT margin %

Sites of Innogy
Serving all countries across Europe
1 2 3 4 5 6 7
Performance per segment Renewable Power Generation Capacity distribution (in MW)
9%
2%
17%
50%
22%
Onshore Wind Offshore Wind

Hydro Other Renewables
Non-Renewables
Renewables
Retail
Grids & Infrastructure
Source: Company data, team analysis

Strategic Outlook
Cost reductions and smart investments shall guarantee growth opportunities for the next years
1 2 3 4 5 6 7
Renewables - Growth options until 2023
Capacity in operation, under construction / development

GW, pro-rata
Onshore Offshore Hydro Solar/other
3.3 7.8
3.2
1.3
3.4 0.3
31 Dec 2017 COD 2018-2019 2018-2019 2020-23 Post 2023 Total pipeline
In operation Currently under Currently under development

construction
Source: Company data, team analysis

Industry Overview

Utilities industry
Utility sector is growing at a solid rate with accelerating growth in renewables
1 2 3 4 5 6 7
Global renewable capacity … … Global renewable energy market geography segmentation
in GW Rest of World
CAGR CAGR 13%
3,000 +17.6% ’13-‘17 ’17-’21F
2,500
+8.2% 2% 4% United States
2,000 11%
1,500 14% 27% Asia-Pacific
41%
1,000
500 31% 67%
0 Europe
'13 '14 '15 '16 '17 '18F '19F '20F 35%
Solar Power Wind Power Hydro Power
Renewables Europe capacity … ... Electricity consumption in EU
in GW in EURbn in TWh
3.3 CAGR
700 350
600 +10.2% 300 3.2 +0.8%
CAGR
500 +10.7% 250 3.1 +1.9%
400 200
3.0
300 150
2.9
200 100
100 50 2.8
0 0 2.7
'13 '14 '15 '16 '17 '18F '19F '20F 2011 2012 2013 2014 2015 2016 2020 2025
Solar Power Wind Power (Off- & Onshore) Total Renewables Europe
Source: Bloomberg, MarketLine,

European utilities industry
Utility sector is growing at a solid rate with accelerating growth in renewables
1 2 3 4 5 6 7
… Electricity prices in Germany and UK … Outlook
in EUR/kWh
+ LCOE costs declined by -34.7% in renewables (5Y) and drive up
35 investments
30
+ Strong market growth in renewables and general utilities
25
c. 47% of total capacity
20 - Oversupply in Europe:
used
15
10
- Increasing competition: strong foothold necessary
5 - Less government subsidies & fixed tariffs

'10 '11 '12 '13 '14 '15 '16 '17
Ger: B2B prices UK: B2B prices Ger: B2C prices UK: B2C prices
Segment revenues peer comparison … Operational metrics benchmarking
80,000
45 1,600
40 1,400
60,000 35 1,200
30
1,000
40,000 25
800
20
600
15
20,000 400
10
5 200
0 0 0
Grid & Infra Renewables Retail Undisclosed / Other Capacity Renewable Energy (GW) Grid Length (in km)
Source: Bloomberg, Thomson Reuters, Company information

Deal Rationale
Who will profit from Innogy’s Split-Up?
1 2 3 4 5 6 7
Deal Rationale
E.ON
RWE Shareholders
Shareholders
16.67% 83.33%
100%
Supply & Conventional Preussen-

EUR 1.5bn 76.8% Renewables Networks Retail
Trading Power generation Elektra
12.5% 25%
Innogy SE
Grid & Gundre-
Renewables Retail Emsland Other
Infrastructure mmingen
37.9%
Gas
KELAG Other
storage
RWE after Deal E.ON after Deal

8GW 37m 50m 600-800m
10GW Capacity RAB Customers Cost synergies
Renewables Capacity
1) 2)
#3 #2 #1 #1 Syner-
player player player player
in Europe in Europe in Europe in Europe gies
Source: Company data, team analysis 1) within the renewables electricity Market 2) within the general electricity market excl . renewables
Legend: To E.ON To RWE

Financial Analysis

Financial Analysis
Key ratios & metrics
1 2 3 4 5 6 7
IPO indicated a decline in current ratio (chg. of A/R and A/P schedule) Grossconstant
Favorable Profit Margin – EBITDA margins
profitability Margin – EBIT Margin – Net Income Margin
1.5x 25%
IPO
1.3x 10/2016
20%
1.0x
15%
0.8x
10%
0.5x
0.3x 5%
0.0x 0%
13' 14' 15' 16' 17' F18' E19' E20' E21' 13' 14' 15' 16' 17' F18' E19' E20' E21'
EPS – Div. Yield in % – ROE Gross Profit Margin EBITDA Margin EBIT Margin Net Income Margin
Solid Dividend Payout with yields between 3.8-7.7% Operating leverage between 1.7-2.4x with strong interest coverage
In EUR
5.0 30% 3.5x 10x
25% 3.0x
4.0 9x
2.5x
20%
3.0 8x
2.0x
15%
2.0 1.5x 7x
10%
1.0x
1.0 6x
5% 0.5x
5x
0.0 0% 0.0x
13' 14' 15' 16' 17' F18' E19' E20' E21' 13' 14' 15' 16' 17' F18' E19' E20' E21'
-0.5x 4x
EPS Div Yield % ROE Net Debt/EBITDA Interest Coverage Ratio
Source: Company information, Team analysis

6 Risk Analysis 25
7 Appendix Valuation Analysis 27

Valuation Summary
Innogy valued at price range of EUR 24.4 to 37.32
Target 1 2 3 4 5 6 7
Valuation Distribution Share Price
9.5x 11.1x
Weighted Share Price
10%
SOTP
35% DCF
20%
CCA
CTA
35% DDM
Trading Transaction 0 15 30 45 60
DDM DCF
Comps Comps
Min-25% 25%-Med Med-75% 75%-Max
Equity Bridge
WACC %
In EURm
40,000
32,560 4.9% 5.9% 6.9% 7.9% 8.9% 9.9% 10.9%
1.2% 47.14 40.68 36.24 33.01 30.53 28.58 27.00
Growth rate %
30,000
1.3% 48.92 41.88 37.15 33.74 31.16 29.14 27.51
19,642 1.4% 50.91 43.19 38.12 34.52 31.82 29.73 28.05
20,000
555.56m 1.5% 53.16 44.63 39.17 35.36 32.53 30.36 28.62
1.6% 55.73 46.22 40.31 36.25 33.29 31.02 29.23
10,000
1.7% 58.69 47.99 41.54 37.22 34.10 31.73 29.88
35.4 1.8% 62.15 49.96 42.89 38.25 34.96 32.49 30.57
0
EV Total Minority Cash & Cash Equity Share
debt Interest Equ. Value Price
Source: Company Information, Team analysis - 16 - | Valid until 30/06/2018 © Equity Research / wutis
DCF Analysis
Well positioned in Grid & Infrastructure & Renewables, Retail has to be restructured
1 2 3 4 5 6 7
Segment Revenues and Margin Forecast
CoE: CoD: WACC:

10.1% 4.86% 7.9%
In EURm
40,000
-2.8%
35,000
30,000 -2.5%
-1.3%
25,000
-0.5% CAGR CAGR CAGR CAGR
’13-‘17 ’17-‘22 ’22-‘27 ’27-‘32
20,000
15,000 2.5% 1.0% 1.0% 1.1%
10,000
-5.3% -4.4% -3.0% -2.0%
5,000
10.4% 4.5% 5.9% 4.6%
0
13' 14' 15' 16' 17' 18F 19F 20F 21F 22F 23F 24F 25F 26F 27F 28F 29F 30F 31F 32F -2.5% -1.0% -0.5% 4.6%
-5,000
Grid and Infrastructure Retail Renewables Other, Consolidation
Source: Company Information, Team estimates - 17 - | Valid until 30/06/2018 © Equity Research / wutis
Dividend Discount Model
Solid dividend yield at roughly 4.5% expected
1 2 3 4 5 6 7
DPS – Historical DPS – Forecast

In EUR In EUR
5.0 120% 3.5
4.5
100% 3.0
4.0
3.5 2.5
80%
3.0
2.0
2.5 60%
2.0 1.5
40%
1.5 1.0
1.0
20% 0.5
0.5
0.0 0% 0.0
2013 2014 2015 2016 2017 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031
EPS DPS Payout Ratio DPS - Forecast DPS
Key Highlights Dividend 2015 2016 2017 2018F 2019F 2020F 2021F 2022F
DPS 2.69 1.77 1.80 1.33 1.37 1.39 1.44 1.46
y/y growth % -8.0% -34.1% 1.7% -26.3% 3.0% 2.0% 3.0% 2.0%
Dividend Yield 7.1% 4.9% 4.9% 4.2% 4.3% 4.4% 4.4% 4.5%
RoE 13.8% 13.7% 16.7% 23.8% 20.4% 17.6% 15.5% 13.5%
Eearnings Retention 40.8% 33.3% 33.3% 159.3% -12.2% 25.0% 25.0% 25.0%
g = ROE x Retention 5.0% 27.0% -3.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Payout Ratio 75% 39% 114% 80% 80% 80% 80% 80%
Source: Company Information, Team analysis - 18 - | Valid until 30/06/2018 © Equity Research / wutis
Comparable Company Analysis
Selected peer group median of EV/EBITDA is between 7.0x and 7.3
1 2 3 4 5 6 7
35.0x
EV/EBITDA EV/EBIT
30.0x
25.0x Selection Criteria
20.0x
EV/EBIT
15.0x Median: 12.2x
 Industry: Utilities
10.0x  Geography: Europe
EV/EBITDA
Median: 7.0 x  Market Cap: EUR >3bn
5.0x
 According to Innogy’s business
0.0x
model
In EUR Market Enterprise

Company Country Cap (m) Value (m) Beta1 EV / EBIT EV / EBITDA
31.03.17 31.03.17 31.03.17 2017 2018F 2019F 2020F 2017 2018F 2019F 2020F
Innogy SE GER 18,153 31,071 0.63 16.62x 11.46x 11.44x 11.31x 7.17x 7.42x 7.31x 7.17x
Enel SpA IT 51,916 108,980 0.92 11.13x 10.51x 9.88x 9.46x 6.96x 6.70x 6.37x 6.15x
Iberdrola SA ES 40,811 79,013 0.78 29.13x 15.11x 13.90x 13.24x 10.80x 8.78x 8.22x 7.82x
Electricite de France
FR 30,364 68,933 n/a 12.23x 11.62x 10.33x 9.57x n/a 4.62x 4.34x 4.05x
SA
E.ON SE GER 19,944 32,288 1.26 7.02x 11.12x 10.76x 10.36x 6.52x 6.62x 6.34x 6.17x
SSE PLC GB 15,082 22,922 0.95 10.03x 11.35x 11.01x 10.91x 6.47x 7.90x 7.63x 7.55x
Verbund AG AUT 3,414 6,367 0.48 16.12x 13.80x 10.71x 9.20x 7.08x 7.88x 6.72x 6.09x
EVN AG AUT 3,004 4,209 0.39 12.14x 12.47x 13.11x 13.05x 5.83x 6.82x 6.97x 6.89x
Engie SA IT 34,910 63,141 0.91 22.40x 11.44x 10.71x 10.14x n/a 6.61x 6.32x 6.11x
Median 19,944 32,288 0.85 12.23x 11.46x 10.76x 10.36x 6.96x 6.82x 6.72x 6.17x
Average 24,177 46,325 0.79 15.20x 12.10x 11.32x 10.81x 7.26x 7.04x 6.69x 6.44x
Source: Reuters - 19 - | Valid until 30/06/2018 © Equity Research / wutis

1 Beta = 2 years weekly (Reuters)
Comparable Transactions
Selected transaction comps are valued at EV/EBITDA from 4.0x to 8.9x
1 2 3 4 5 6 7
EV/Sales EV/EBITDA EV/EBIT
20.0x 18.8x
18.0x
16.0x EV/EBIT
14.2x Median: 14.2x
14.0x
12.0x
10.5x
10.0x 8.9x
8.1x
8.0x EV/EBITDA
Median: 6.4x
5.8x
6.0x 4.8x
4.1x
EV/Sales
4.0x 3.0x Median: 2.1x
2.1x
2.0x 1.0x 0.9x
n.a. 0.0x 0.0x 0.0x
0.0x
2010 2011 2012 2013 2014 2016 2017
Target
Country
Acquiror
Stake 20% 21% 50% 100% 100% 60% 100%
Deal Size
(EURm) 5,348 2,690 4,500 2,500 552 2,036 1,015
Source: Mergermarket - 20 - | Valid until 30/06/2018 © Equity Research / wutis

6 Risk Analysis 25
7 Appendix Risk Analysis 27

Investment Risks
Main Risk Categories: Operational (O) – Market (M) – Political (P)
1 2 3 4 5 6 7
Unsteady weather conditions and

O1 their impact on energy generation
capabilities
O2 O1
High
Capital expenditure may fall short of
P1
O2 expectations and its impact on
earnings
Probability
Medium
High level of competition in the retail M1
M1
business and its impact on revenue
Changes in commodity prices can

M2
have an influence on business results
Low M2
Changes in the regulatory

P1 environment may negatively influence
sizable regulated business segments Low Medium High
Impact
Source: Team Analysis

Investment Risks
Market and regulatory environment jeopardizing ambitious project pipeline
1 2 3 4 5 6 7
P1: Regulatory environment O2: Ambitious project pipeline
 Potential subsidy cuts

 Regulatory action may shift market place (e.g.
„Energiewende“)
> 5 GW international project
pipeline…
M1: Market competition

...a third of which in the
 Increasing pressure on energy prices
US market…
 Competitive tender procedures
 Emerging new business models
...in early stages of

RWE and E.ON Deal
development/planning.
 Qs regarding post-merger integration
 Drastic shift towards renewables
Concerns about project pipeline feasiblity
and bottom line impact
Source: Team Analysis

Conclusion
Given its favorable outlook and the upcoming E.ON and RWE deal, upside potential is limited
1 2 3 4 5 6 7
Innogy share price performance

EUR
45.0
Target
Industry grows 43.0 Price
solid but is
41.0 € 35.36
transforming
39.0 -1.7%
Market
leader in gas 37.0
HOLD
networking
Current 35.0
distribution
Price
€ 35.97 33.0
as of May 26 31.0
Risk within
its divisions 29.0
Risk of 27.0
changing
regulatory 25.0
10.7.16 2.27.17 7.19.17 12.6.17
environment
To date, Innogy is valued fairly in line with its current valuation given our investment thesis
Source. Team analysis

Conclusion
Given its favorable outlook and the upcoming E.ON and RWE deal, upside potential is limited
1 2 3 4 5 6 7
Innogy share price performance

EUR
45.0
Target
Industry grows 43.0 Price
solid but is
41.0 € 35.36
transforming
39.0 -1.7%
Market
leader in gas 37.0
HOLD
networking
Current 35.0
distribution
Price
€ 35.97 33.0
as of May 26 31.0
Risk within
its divisions 29.0
Risk of 27.0
changing
regulatory 25.0
10.7.16 2.27.17 7.19.17 12.6.17
environment
To date, Innogy is valued fairly in line with its current valuation given our investment thesis
Source. Team analaiys

Appendix

Appendix Overview
Appendix A Appendix B Appendix C
1. Income Statement 1. Valuation Overview 1. Add-hoc News

2. Balance Sheet 2. DCF Output Table
3. Cash Flow Statement 3. DCF – Renewables Forecast
4. DCF – Retail and G&I Forecast
5. DCF Working Capital
6. Cost of Equity
7. Cost of Debt
8. Discounted Dividend Model
9. SOTP – Output Table
10. Innogy / SSE Merger
11. CCA Peer Group
12. CTA Peer Group

Appendix A: Income Statement
1 2 3 4 5 6 7
Income Statement in EURmn 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Sales 46,029 43,506 43,456 41,549 41,119 40,105 38,841 37,773 36,969
(-) GOGS -37,320 -35,028 -34,525 -32,515 -32,454 -31,942 -30,935 -30,084 -29,444
Gross Profit 8,709 8,478 8,931 9,034 8,665 8,163 7,906 7,689 7,525
(-) SG&A -3,261 -3,144 -3,102 -3,267 -3,433 -3,021 -2,926 -2,845 -2,785
(-) Other Operating Expenses -1,827 -1,070 -1,201 -1,331 -411 -497 -188 -180 -255
EBITDA 3,621 4,264 4,628 4,436 4,821 4,645 4,792 4,663 4,486
(-) D&A -2,150 -1,451 -1,640 -1,780 -2,005 -1,805 -2,020 -1,964 -1,922
EBIT 1,471 2,813 2,988 2,656 2,816 2,841 2,773 2,699 2,563
(-) Interest exp. -683 -685 -606 -746 -502 -701 -701 -701 -701
(+) Interest income 355 756 772 644 368 629 629 629 629
Net Income before Taxes 1,143 2,884 3,154 2,554 2,682 2,769 2,701 2,627 2,492
(-) Taxes -551 -523 -860 -415 -499 -711 -694 -675 -640
Net Income after Taxes 592 2,361 2,294 2,139 2,183 2,058 2,007 1,952 1,852
Margin Table
COGS % Sales -81.1% -80.5% -79.4% -78.3% -78.9% -79.6% -79.6% -79.6% -79.6%
Gross Profit %
Sales 18.9% 19.5% 20.6% 21.7% 21.1% 20.4% 20.4% 20.4% 20.4%
SG&A % Sales -7.1% -7.2% -7.1% -7.9% -8.3% -7.5% -7.5% -7.5% -7.5%
EBITDA % Sales 7.9% 9.8% 10.6% 10.7% 11.7% 11.6% 12.3% 12.3% 12.1%
D&A % Sales -4.7% -3.3% -3.8% -4.3% -4.9% -4.5% -5.2% -5.2% -5.2%
EBIT % Sales 3.2% 6.5% 6.9% 6.4% 6.8% 7.1% 7.1% 7.1% 6.9%
Net Income before taxes % Sales 0.8% 1.7% 1.8% 1.5% 0.9% 1.6% 1.6% 1.7% 1.7%
Taxe Rate % -48.2% -18.1% -27.3% -16.2% -18.6% -25.7% -25.7% -25.7% -25.7%
Net Income after taxes % Sales 1.3% 5.4% 5.3% 5.1% 5.3% 5.1% 5.2% 5.2% 5.0%

Appendix A: Balance Sheet
1 2 3 4 5 6 7
Balance Sheet in EURmn 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Assets 54,813 56,504 57,972 46,890 46,814 45,529 45,930 46,293 46,578
Current assets 20,386 20,855 19,737 10,651 10,312 8,626 8,522 8,394 8,383
Cash & Cash Equivalents 2,526 2,388 2,444 4,067 3,324 2,003 2,087 2,119 2,228
Accounts Receivable 17,416 17,666 16,913 5,557 5,910 5,564 5,389 5,241 5,129
Inventory 441 491 379 391 373 385 373 363 355
Prepaid
Expenses 3 0 1 53 53 21 21 20 20
Other current assets 0 310 0 583 652 652 652 652 652
Non-current assets 34,427 35,649 38,235 36,239 36,502 36,903 37,408 37,899 38,195
PP&E 16,980 17,309 18,308 17,954 18,361 18,762 19,267 19,758 20,054
Goodwill 10,343 10,501 10,974 10,658 10,191 10,191 10,191 10,191 10,191
Intangibles 1,255 1,194 1,204 1,051 1,156 1,156 1,156 1,156 1,156
Long Term Investments 2,882 2,889 2,692 2,959 3,053 3,053 3,053 3,053 3,053
Notes receivables 1,179 1,495 2,242 479 473 473 473 473 473
Other Long Term Assets 1,788 2,261 2,815 3,138 3,268 3,268 3,268 3,268 3,268
Equity & Liabilities 54,813 56,504 57,972 46,890 46,814 45,529 45,930 46,293 46,578
Total Equity 15,654 16,937 16,649 8,931 9,439 10,759 12,007 13,184 14,238
Common Stock n.a. n.a. n.a. 1,111 1,111 1,111 1,111 1,111 1,111
Unrealized Gains/Losses n.a. n.a. n.a. 85 85 85 85 85 85
Other Equity 15,654 16,937 16,649 -766 -618 -618 -618 -618 -618
Retained Earnings n.a. n.a. n.a. 8,501 8,861 10,181 11,429 12,606 13,660
Current liabilities 15,565 16,792 15,812 11,781 12,649 11,549 12,037 11,230 12,197
Accounts Payable 5,357 4,906 4,553 4,302 4,001 4,287 4,152 4,038 3,952
Accrued Expenses 726 692 726 1,163 1,127 832 806 784 767
Current Port. of LT Debt/Capital Leases 171 113 1,019 110 1,218 127 776 105 1,174
Other Current liabilities 9,311 11,081 9,514 6,206 6,303 6,303 6,303 6,303 6,303
Non-current liabilities 23,594 22,775 25,511 26,178 24,726 23,220 21,886 21,880 20,144
Long term debt 13,633 215 11,875 11,717 13,211 13,211 13,211 13,211 13,211
Deferred Income Tax 820 772 904 521 542 542 542 542 542
Minority Interest 1,335 1,461 1,811 1,736 1,813 1,813 1,813 1,813 1,813
Other liabilities 7,806 20,327 10,921 12,204 9,160 7,654 6,320 6,314 4,578
Total liabilities 39,159 39,567 41,323 37,959 37,375 34,770 33,923 33,109 32,340

Appendix A: Cash Flow Statement
1 2 3 4 5 6 7
CF-S in EURm 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F
Net Income after taxes 592 2,361 2,294 2,139 2,183 2,058 2,007 1,952 1,852
D&A 2,150 1,451 1,640 1,780 2,005 1,805 2,020 1,964 1,922
Deferred Taxes -65 -73 -77 -648 -43 -43 -43 -43 -43
Other non-cash items 674 -346 -1,912 -58 -560 -560 -560 -560 -560
Changes in Working Capital 342 74 210 -215 -177 -357 -27 -23 -17
Cash from Operating Activities 3,693 3,467 2,155 2,998 3,408 2,903 3,397 3,291 3,154
Capital Expenditures -2,297 -2,059 -2,025 -1,833 -1,835 -2,206 -2,525 -2,455 -2,218
Other Investing Cash Flow Items -257 -1,626 923 7,051 35 35 35 35 35
Cash from Investing Activities -2,554 -3,685 -1,102 5,218 -1,800 -2,171 -2,490 -2,420 -2,183
Financing Cash Flow Items 1,305 1,474 -178 -7,199 -64 -64 -64 -64 -64
Total Cash Dividends Paid -1,357 -486 -1,017 -979 -1,328 -737 -759 -775 -798
Issuance (Retirement) of Debt, Net -952 -639 -398 1,136 220 0 0 0 0
Cash from financing Activities -1,004 349 -1,593 -7,042 -1,172 -801 -823 -839 -862
Foreign Exchange Effects -3 10 15 -21 9 0 0 0 0
Net Change in Cash 132 141 -525 1,153 445 -70 84 32 109
Net Cash - Beginning Balance 727 859 1,000 475 1,628 2,073 2,003 2,087 2,119
Net Cash - Ending Balance 859 1,000 475 1,628 2,073 2,003 2,087 2,119 2,228

Appendix B: Valuation Overview
Summary of DCF, DDM, CCA, CTA, SOTP
1 2 3 4 5 6 7
Cash & Diluted

Base Case Total Cash Minority Equity Share
EV/EBIDA EV/EBIT EV Weight % Debt Equ. Interests Value Shares Out. Price
DCF 7.7x 11.9x 33,097 35% 14,429 3,324 1,813 20,179 556 36.32
DDM 7.8x 12.1x 33,650 35% 14,429 3,324 1,813 20,732 556 37.32
CCA 7.6x 11.7x 32,759 20% 14,429 3,324 1,813 19,841 556 35.71
CTA 6.2x 9.5x 26,467 10% 14,429 3,324 1,813 13,549 556 24.39
SOTP 7.8x 12.0x 33,371 0% 14,429 3,324 1,813 20,453 556 36.81
Total EV 32,560 100% 14,429 3,324 1,813 19,642 556 35.36

Appendix B: Valuation – DCF Output
DCF Output Base Case
1 2 3 4 5 6 7
DCF - Base Case 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F TV
Total Revenue 46,029 43,506 43,456 41,549 41,119 40,105 38,841 37,773 36,969 36,214 35,712 35,221 34,761 34,331 33,931 33,753 33,559 33,380 33,216
Retail 39,136 35,819 35,068 32,554 31,492 30,177 28,668 27,378 26,283 25,232 24,475 23,740 23,028 22,337 21,667 21,234 20,809 20,393 19,985
G&I 12,892 13,044 13,225 14,040 14,215 14,358 14,504 14,651 14,801 14,953 15,107 15,263 15,422 15,583 15,746 15,912 16,081 16,252 16,425
Renewables 916 825 1,158 1,097 1,362 1,446 1,491 1,515 1,617 1,726 1,844 1,947 2,058 2,175 2,300 2,433 2,536 2,645 2,759
(-) COGS 37,320 35,028 34,525 32,515 32,454 31,942 30,935 30,084 29,444 28,843 28,442 28,052 27,685 27,343 27,024 26,883 26,728 26,585 26,455
Gross Profit 8,709 8,478 8,931 9,034 8,665 8,163 7,906 7,689 7,525 7,371 7,269 7,169 7,076 6,988 6,907 6,871 6,831 6,794 6,761
(-) SG&A 3,261 3,144 3,102 3,267 3,433 3,122 3,023 2,940 2,877 2,819 2,780 2,741 2,706 2,672 2,641 2,627 2,612 2,598 2,585
(-) Other opex 2,515 1,688 1,879 1,767 1,915 1,769 1,713 1,666 1,631 1,598 1,575 1,554 1,533 1,514 1,497 1,489 1,480 1,472 1,465
EBITDA 2,933 3,646 3,950 4,000 3,317 3,273 3,170 3,082 3,017 2,955 2,914 2,874 2,837 2,802 2,769 2,754 2,739 2,724 2,711
(-) D&A 1,343 1,297 1,365 1,455 1,467 1,365 1,322 1,286 1,258 1,233 1,215 1,199 1,183 1,168 1,155 1,149 1,142 1,136 1,131
EBIT 1,471 2,813 2,988 2,656 2,816 2,841 2,773 2,699 2,563 2,585 2,601 2,623 2,647 2,674 2,703 2,727 2,754 2,782 2,811
Taxes 551 523 860 415 499 671 578 573 512 535 553 545 550 553 563 569 573 579 585
(+) D&A 1,343 1,297 1,365 1,455 1,467 1,365 1,322 1,286 1,258 1,233 1,215 1,199 1,183 1,168 1,155 1,149 1,142 1,136 1,131
(-) Chg. In NWC 782 782 (545) (11,478 672 (357) (27) (23) (17) (16) (11) (10) (10) (9) (8) (4) (4) (4) (3)
(-) CAPEX 2,297 2,059 2,025 1,833 1,835 2,206 2,525 2,455 2,218 1,992 1,964 1,937 1,912 1,888 1,866 1,688 1,678 1,669 1,661
Unlevered FCF (9) 900 2,288 13,666 1,815 2,125 1,717 1,658 1,773 1,957 1,844 1,877 1,898 1,924 1,944 2,128 2,152 2,174 2,197 35,192
WACC 7.9%
Growth Rate 1.5%
Total PV of FCF 16,651
PV of TV 16,446 WACC
% of EV 50% 5.9% 6.9% 7.9% 8.9% 9.9%
Enterprise Value 33,097 1.00% 57.3 43.8 34.0 26.7 20.9
Less: Net Debt 11,105 1.25% 59.9 45.4 35.1 27.4 21.4
Growth %
Less: Minor. Int. 1813 1.50% 62.8 47.2 36.3 28.3 22.0
Total Equ. Value 20,179 1.75% 66.1 49.2 37.6 29.1 22.7
Dilu. Shares Out. 556 2.00% 69.8 51.4 39.0 30.1 23.3
Target Price 36.32

Appendix B: Valuation
Discounted Cash Flow Assumptions
1 2 3 4 5 6 7
Historical Average Projected
Discounted Cash Flow Model 2016 2017 '14-'17 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Comments
Net Sales by
Segment: 1. According to growth in
Grid and Infrastructure 14.040 14.215 14,358 14,504 14,651 14,801 14,953 15,107 15,263 15,422 15,583 15.746 electricity(0,8%) and gas
growth % 6,2% 1,2% 2,9% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1,0% 1 consumption (3%)
Retail 32.554 31.492 30,177 28,668 27,378 26,283 25,232 24,475 23,740 23,028 22,337 21,667
2. Forecast based on customer
growth % -7,2% -3,3% -4,2% -4.2% -5.0% -4.5% -4.0% -4.0% -3.0% -3.0% -3.0% -3.0% -3.0% 2
development, competitive
Renewables 1.097 1.362 1,446 1,491 1,515 1,617 1,726 1,844 1,947 2,058 2,175 2,300
growth % -5,3% 24,2% 19,8% 6.1% 3.2% 1.6% 6.7% 6.8% 6.8% 5.6% 5.7% 5.7% 5.7%
business
3
Other, Consolidation -4.080 -3.930 -3,856 -3,802 -3,752 -3,712 -3,677 -3,694 -3,710 -3,727 -3,744 -3,762 3. Based on the planned
growth % 5,1% -3,7% -0,6% -1.9% -1.4% -1.3% -1.0% -0.9% 0.5% 0.4% 0.5% 0.5% 1 0.5%
4 investment projects
Tax receipt -2.062 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020 -2.020
Total Sales 41.549 41.119 40,105 38,841 37,773 36,969 36,214 35,712 35,221 34,761 34,331 33,931 4. Average growth of all
growth % -4,4% -1,0% -2.5% -3.2% -2.7% -2.1% -2.0% -1.4% -1.4% -1.3% -1.2% -1.2% segments
EBIT Grid & Infrastructure 1.709 1.944 1,925 1,905 1,886 1,896 1,905 1,905 1,915 1,924 1,934 1,944
% sales 13,3% 15,1% 14,4% 13.7% 13.7% 13.7% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 5. Heavy competition and
EBIT Retail 844 800 775 711 647 473 454 441 427 415 402 390 5 therefore decreasing margins
% sales 2,2% 2,0% 2,1% 2.0% 1.9% 1.9% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8%
EBIT Renewables 359 355 377 389 395 422 450 481 508 536 567 599 5 6. Assuming constant D&A of
% sales 39,2% 38,8% 43,7% 26.1% 26.1% 26.1% 26.1% 26.1% 26.1% 26.1% 26.1% 26.1% 26.1% sales of 2017
EBIT Other, Consolidation -256 -283 -236 -232 -229 -227 -225 -226 -227 -228 -229 -230 5
% sales 5,9% 6,5% 6,1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 7. Maintaining and expanding
EBIT 2.656 2.816 2,841 2,773 2,699 2,563 2,585 2,601 2,623 2,647 2,674 2,703 Grid & Infrastructure and e-
% sales 6,4% 6,8% 6,7% 7.1% 7.1% 7.1% 6.9% 7.1% 7.3% 7.4% 7.6% 7.8% 8.0% mobility
Taxes 415 499 671 578 573 512 535 553 545 550 553 563
Tax Rate % 15,6% 17,7% 20,7% 23.6% 20.8% 21.2% 20.0% 20.7% 21.3% 20.8% 20.8% 20.7% 20.8%
NOPAT 2.241 2.317 2,169 2,195 2,126 2,052 2,050 2,047 2,077 2,097 2,121 2,140
(+) Depreciation &
Amortization: 1.780 2.005 1,805 2,020 1,964 1,922 1,883 1,750 1,726 1,703 1,682 1,663
% sales 4,3% 4,9% 4,3% 4.5% 5.2% 5.2% 5.2% 5.2% 4.9% 4.9% 4.9% 4.9% 4.9%
(-) Net Change in WC -11.478 672 -357 -27 -23 -17 -16 -11 -10 -10 -9 -8
6
% sales 1,3% 2,9% 17,3% 17.3% 17.3% 17.3% 17.3% 17.3% 17.3% 17.3% 17.3% 17.3% 17.3%
(-) CAPEX 1.833 1.835 2,206 2,525 2,455 2,218 1,992 1,964 1,937 1,912 1,888 1,866
% sales 4,4% 4,5% 4,5% 5.5% 6.5% 6.5% 6.0% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Unlevered FCF 13.666 1.815 2,125 1,717 1,658 1,773 1,957 1,844 1,877 1,898 1,924 1,944
Growth Rate: 497,4% -86,7% 17.1% -19.2% -3.4% 7.0% 10.4% -5.8% 1.8% 1.2% 1.3% 1.1% 7
Sum pf PV of FCF 16,651 (-)Net debt 11.105 Implied Equity Value 20,179
PV of TV 16,446 (-)preferred stock 0
Implied Share Price 36.32
Enterprise Value 33,097 (-)non controlling interest 1.813 Current Share Price € 35.97
TV % EV 49.69% Return Potential % +1%

DCF – Renewables Forecast
1 2 3 4 5 6 7
in EURm
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Renewables Revenue 1,097 1,362 1,445.5 1,491.1 1,515.2 1,617.2 1,726.4 1,844.0 1,947.5 2,057.6 2,174.8 2,299.7 2,432.6 2,536.2 2,644.9 2,758.8 2,878.2
growth % -5.3% 24.2% 6.1% 3.2% 1.6% 6.7% 6.8% 6.8% 5.6% 5.7% 5.7% 5.7% 5.8% 4.3% 4.3% 4.3% 4.3%
Revenue / Gwh in
Renewables 296 406 371 371 371 371 371 371 371 371 371 371 371 371 371 371 371
Innogy Production Capacity

- Gwh 3.7 3.4 3.9 4.0 4.1 4.4 4.7 5.0 5.3 5.6 5.9 6.2 6.6 6.8 7.1 7.4 7.8
Innogy Share % Europe -
Gwh 29.6% 24.0% 31.8% 29.8% 37.2% 37.6% 38.0% 38.2% 38.6% 39.1% 39.5% 39.9% 40.2% 40.7% 41.2% 41.8% 42.3%
growth rate % 19% -9% 16.1% 3.2% 1.6% 6.7% 6.8% 6.8% 5.6% 5.7% 5.7% 5.7% 5.8% 4.3% 4.3% 4.3% 4.3%
Onshore
Revenue/Gwh onshore 166.0 219.2 194.4 194.4 194.4 194.4 194.4 194.4 194.4 194.4 194.4 194.4 194.4 194.4 194.4 194.4 194.4
% margin on Total Rev. /
GwH 56% 54% 54.4% 54.8% 54.4% 54.5% 54.6% 54.5% 54.5% 54.5% 54.5% 54.5% 54.5% 54.5% 54.5% 54.5% 54.5%
Wind - Onshore 2.1 1.8 1.9 2.0 2.2 2.3 2.5 2.6 2.8 2.9 3.0 3.2 3.3 3.5 3.6 3.7 3.8
growth % 26% -12% 5.8% 6.4% 6.4% 6.4% 6.4% 6.4% 5.0% 5.0% 5.0% 5.0% 5.0% 3.5% 3.5% 3.5% 3.5%
% Share for Wind –
Onshore 56% 54% 49.3% 50.8% 53.2% 53.0% 52.9% 52.7% 52.4% 52.0% 51.7% 51.3% 50.9% 50.6% 50.2% 49.8% 49.4%
Offshore
Revenue/Gwh offshore 80.1 122.8 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2 106.2
27% 30% 29.4% 28.9% 29.5% 29.3% 29.2% 29.4% 29.3% 29.3% 29.3% 29.3% 29.3% 29.3% 29.3% 29.3% 29.3%
GwH
Wind - offshore 1.0 1.0 1.1 1.2 1.3 1.5 1.6 1.8 1.9 2.1 2.2 2.4 2.6 2.7 2.9 3.1 3.3
growth % 4% 2% 10.4% 9.4% 9.4% 9.4% 9.4% 9.4% 8.0% 8.0% 8.0% 8.0% 8.0% 6.0% 6.0% 6.0% 6.0%
% Share for Wind –
Offshore 27% 30% 28.8% 30.5% 29.5% 29.2% 29.7% 29.6% 29.7% 29.5% 29.5% 29.6% 29.6% 29.6% 29.6% 29.6% 29.6%
Hydro
Revenue/Gwh Hydro 47.4 62.0 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4 56.4
GwH 16% 15% 15.8% 15.7% 15.6% 15.7% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6%
Hydro 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6
growth % 19% -13% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
% Share for Hydro 16% 15% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8% 15.8%
Solar
Revenue/Gwh Solar 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62 13.62
Solar 0.034 0.035 0.037 0.040 0.043 0.045 0.048 0.049 0.051 0.053 0.055 0.057 0.058 0.059 0.061 0.062
growth % 5.0% 5.0% 7.0% 9.0% 5.0% 5.0% 3.5% 3.5% 3.5% 3.5% 3.5% 2.5% 2.5% 2.5% 2.5%
% Share for Hydro 1% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Grid & Infrastructure and Retail forecast
1 2 3 4 5 6 7
External revenue
by product 2016 2017 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F 2032F
Electricity sales
Grid &
Infrastrucutre 9138 93369,411 9,486 9,562 9,638 9,715 9,793 9,872 9,951 10,030 10,110 10,191 10,273 10,355 10,438 10,521
growth 2.2% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8%
Gas sales
Grid &
Infrastructure 924 959 988 1,017 1,048 1,079 1,112 1,145 1,179 1,215 1,251 1,289 1,327 1,367 1,408 1,451 1,494
growth 3.8% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Total Grid & Infrastrucutre

growth 2.3% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.1% 1.1% 1.1% 1.1% 1.1%
Retail
Electricity sales average last 2 years redirection slight increase
Germany 12,528 13,565 13,502 13,440 13,378 13,316 13,254 13,294 13,334 13,374 13,414 13,454 13,562 13,670 13,780 13,890 14,001
UK 6,154 5,539 5,385 5,236 5,091 4,950 4,813 4,765 4,717 4,670 4,623 4,577 4,586 4,595 4,604 4,614 4,623
Netherlands/Belgium 1,044 968 934 901 869 838 808 797 786 775 764 753 752 750 749 747 746
Eastern Europe 1,955 2,042 2,084 2,127 2,170 2,215 2,261 2,317 2,375 2,434 2,495 2,558 2,634 2,713 2,795 2,879 2,965
Total Electricity 21,681 22,114 21,905 21,703 21,508 21,319 21,136 21,173 21,212 21,253 21,296 21,342 21,534 21,729 21,928 22,129 22,335
growth%
Gas sales
Germany 3620 3144 2715 2345 2025 1749 1511 1492 1475 1457 1439 1422 1426 1431 1435 1439 1444
UK 1853 1550 1517 1484 1452 1421 1391 1377 1363 1349 1336 1322 1329 1336 1342 1349 1356
Netherlands/Belgium 2484 2134 2048 1966 1887 1812 1739 1696 1653 1612 1572 1532 1525 1517 1509 1502 1494
Eastern Europe 1506 1346 1320 1294 1268 1244 1219 1217 1214 1212 1209 1207 1219 1231 1244 1256 1269
Total Gas 9463 8174 7600 7089 6633 6225 5859 5781 5705 5630 5556 5484 5499 5515 5530 5546 5562
Electricity & Gas 31,144 30,288 29,505 28,793 28,141 27,544 26,995 26,954 26,917 26,883 26,852 26,826 27,033 27,244 27,458 27,676 27,897
Others (e.g. photovoltaic) 1,802 1,937 1,694 1,653 1,615 1,581 1,550 1,547 1,545 1,543 1,541 1,540 1,552 1,564 1,576 1,589 1,601
margin % 5.47% 6.01% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74% 5.74%
Total Retail 32,946 32,225 31,199 30,445 29,757 29,125 28,545 28,501 28,462 28,426 28,394 28,366 28,585 28,808 29,034 29,264 29,498
growth% -2.2% -3.2% -2.4% -2.3% -2.1% -2.0% -0.2% -0.1% -0.1% -0.1% -0.1% 0.8% 0.8% 0.8% 0.8% 0.8%

Working Capital Schedule
1 2 3 4 5 6 7
Working Capital
Schedule 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F 2030F 2031F
Current assets
A/R 17,416 17,666 16,913 5,557 5,910 5,564 5,389 5,241 5,129 5,024 4,955 4,886 4,823 4,763 4,708 4,683 4,656 4,631 4,608
Inventories 441 491 379 391 373 385 373 363 355 348 343 338 334 330 326 324 322 321 319
Prepaid Expenses 3 0 1 53 53 21 21 20 20 19 19 19 18 18 18 18 18 18 18
Total curr. assets 17,860 18,157 17,293 6,001 6,336 5,971 5,783 5,624 5,504 5,391 5,317 5,244 5,175 5,111 5,052 5,025 4,996 4,969 4,945
Current liabilities
Accounts Payable 5,357 4,906 4,553 4,302 4,001 4,287 4,152 4,038 3,952 3,871 3,817 3,765 3,716 3,670 3,627 3,608 3,587 3,568 3,551
Accrued Expenses 726 692 726 1,163 1,127 832 806 784 767 752 741 731 722 713 704 701 697 693 689
Total current liabilities 6,083 5,598 5,279 5,465 5,128 5,119 4,958 4,822 4,719 4,623 4,559 4,496 4,437 4,382 4,331 4,309 4,284 4,261 4,240
Working Capital 11,777 12,559 12,014 536 1,208 851 824 802 785 769 758 748 738 729 720 716 712 709 705
Chg. In NWC 782 782 -545 11,478 672 -357 -27 -23 -17 -16 -11 -10 -10 -9 -8 -4 -4 -4 -3
% of Sales 1.7% 1.8% -1.3% -7.6% 1.6% -0.9% -0.1% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Working Capital
Drivers
DSO 138 148 142 49 52 51 51 51 51 51 51 51 51 51 51 51 51 51 51
DIH 4 5 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
Pre. Exp. & Other% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
DPO 52 51 48 48 45 49 49 49 49 49 49 49 49 49 49 49 49 49 49
Accr. Exp. % sales 2% 2% 2% 3% 3% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%
Other Liab. % sales 20% 25% 22% 15% 15% 17% 15% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20%

Cost of Equity and Peer group beta
1 2 3 4 5 6 7
Screening Peer Group Selection Innogy Beta

Criteria Filter in EUR Count 767
Industry Electric utility n.a. 767
Size Company Market Cap. >3.000 mn 109
Business
Electric utility or renewable utility n.a. 14
Description 658
According to Innogy’s business
Business Model n.a. 8
model
- 95 6
Industry Size Business Description Business Model
Beta Market Net Tax Unlevered

WACC Analysis
Company Name 2Y weekly Cap. Debt Rate Beta
Enel SpA 0,92 51.916 57.064 25% 0,51
Iberdrola SA 0,78 40.811 38.202 25% 0,46 Risk Free Rate 0,532%
Electricite de France SA out 30.364 38.569 25% n.m. 2-Y relevered Beta 0,78
E.ON SE 1,26 19.944 12.344 25% 0,86
SSE PLC 0,95 15.082 7.840 25% 0,68 Market Risk Premium 12,32%
Verbund AG 0,48 3.414 2.954 25% 0,29 Cost of Equity 10,10%
Source:AG
EVN Thomson Reuters, Team Calculations 0,39 3.004 1.205 25% 0,30
Engie SA 0,91 34.910 28.231 25% 0,57 Cost of Debt 4,86%
Equity ratio 66%
Median 0,91 25.154 20.287,50 25% 0,51
Debt ratio 34%
Unlevered Target Target Average Relevered
Tax rate 20%
Target Company Beta Mcap Net Debt Tax rate Beta
Innogy SE 0,63 18.153 12.918 25% 0,78 WACC 7,9042%
Source: Team Calculations
Cost of Equity
Risk Free Rate 0.532% 20-Y Gov. Bond
2-Y relvered Beta 0.78 Peer Group
Exp. Market Return 12.9% DAX Index
Cost of Equity 10.1%

Debt Schedule
1 2 3 4 5 6 7
Debt Schedule Weighted
Amount Weighted % Coupon % Weighted Coupon Maturity Years Maturity

1,007 8% 5.13% 0.41% 2018 0 0.00
1,062 8% 6.63% 0.56% 2019 1 0.08
761 6% 1.88% 0.11% 2020 2 0.12
702 6% 6.50% 0.36% 2021 3 0.17
1,171 9% 6.50% 0.60% 2021 3 0.28
605 5% 5.50% 0.26% 2022 4 0.19
593 5% 5.63% 0.26% 2023 5 0.23
841 7% 3.00% 0.20% 2024 6 0.40
744 6% 1.25% 0.07% 2025 7 0.41
839 7% 6.25% 0.41% 2027 9 0.60
942 7% 5.75% 0.43% 2030 12 0.89
727 6% 3.80% 0.22% 2033 15 0.86
42 0% 4.75% 0.02% 2033 15 0.05
633 5% 3.50% 0.17% 2034 16 0.80
512 4% 6.13% 0.25% 2037 19 0.77
1,212 10% 4.76% 0.46% 2039 21 2.01
175 1% 3.50% 0.05% 2040 22 0.30
100 1% 3.55% 0.03% 2042 24 0.19
12.668 100% CoD 4.86%

Dividend Discount Model – Output
1 2 3 4 5 6 7
Cost of Equity
Risk Free Rate 0.532% 20Y Bond
Dividend Growth Growth Growth Share Re-levered beta 0.78 Peer Group
Scenario 2017 (1-3) (4-6) (7-10) g (TV) Price Market Risk Premium 12.32%
growth rate 1.80 5.0% 3.0% 2.0% 1.5% 37.32 Cost of Equity 10.10%
Scenario 1 (m) 2017a 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2032e TV
EPS 1.58 1.66 1.71 1.74 1.80 1.83 1.87 1.90 1.92 1.95 1.98 2.01 2.04 2.07 2.10 2.14
growth rate % 5.0% 3.0% 2.0% 3.0% 2.0% 2.0% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Dividend payout
(mn) 1.80 1.33 1.37 1.39 1.44 1.46 1.49 1.52 1.54 1.56 1.59 1.61 1.63 1.66 1.68 1.71 20.2
Discount Factor 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1%
Dividend
discounted 1.21 1.13 1.04 0.98 0.91 0.84 0.77 0.71 0.66 0.61 1.61 1.63 1.66 1.68 1.71
DPS 37.32
Market Value 20,732
DPS, EPS, Payout Ratio

5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
13 14 15 16 17 18F 19F 20F 21F 22F 23F 24F 25F 26F 27F 28F 29F 30F 31F 32F
DPS EPS Payout Ratio

SOTP Output
1 2 3 4 5 6 7
RAB Used
EV EBITDA Share EBITDA EV/EBITDA RAB EV/EBITDA
in EURmn 2020F 2017 % 2019F 2019F in EURbn Premium % 2018F
G&I
Germany 15,160 2,051 71% 1,425 7.6x 9.0 40% 10.6x
Eastern Europe 5,214 823 29% 572 7.6x 4.5 20% 9.1x
Total 20,374 2,874 1,997 7.6x 13.5 10.2x
Retail
Germany 2,485 489 49% 339 7.3x - - 7.3x
UK 168 33 3% 23 7.3x - - 7.3x
NL/BE 1,204 237 24% 164 7.3x - - 7.3x
Eastern Europe 1,024 246 24% 171 6.0x - - 6.0x
Total 4,881 1,005 697 7.0x 7.0x
Renewables
Quasi-regulated 4,124 463 67% 317 13.0x - - 13.0x
Unregulated 1,485 231 33% 158 9.4x - - 9.4x
Total 5,608 694 476 11.8x 11.8x
Total SOTP EV 30,863
Added EV from Npower/SSE merger 2,508
Total EV 33,371
Net Debt 11,105
Minority interest 1,813
Equity Value 20,453
Share Price 36.81

Npower / SSE Merger
1 2 3 4 5 6 7
FX EUR/GBP 29.05.18 0.8733
Generation Total
Mcap EV Capacity Output EBIT EBITDA EV/EBITDA
Name Unit 2018 2018 MW GWh FY17 FY18F FY19F FY17 FY18F FY19F FY17 FY18F FY19F
Npower EUR 11,976 26,282 4,366 5,103 5,249 4.4x 5.2x 5.0x
SSE PLC EUR 14,431 23,979 2,695 2,572 2,580 8.3x 10.0x 9.3x
EPM and Electricity Generation Pound 736 930

Gas Production Pound -201 -57
Gas Storage Pound -37 -36
Wholesale 10,643 26,296 498 403 837
Energy Supply Pound 313 328
Energy-related Services Pound -20 -8
Enterprise Pound 17 62
Retail 310 328 382
Total Pound 808 1,219 1,230 1,167
growth y/y 1% -5%
Total EUR 705 1,064 1,074 1,019
Combined EUR 26,406 50,260 5,430 6,178 6,268 6.3x 7.6x 7.2x
EV/EBITDA Multiple x 7.2x
Added EV to Innogy EUR 7,289
Stake % 34.4%
EV added to Innogy 2,508

Company Comparable Analysis – European Utility Peers
1 2 3 4 5 6 7
Revenue CAGR EBITDA CAGR EBIT CAGR Div. Yield % ROA % ROE % Net Debt/EBITDA
Innogy SE GER 2.24% 7.84% 7.25% 4.45% 3.50% 8.00% 3.84
European Peers
EDF FR 1.27% -7.38% -11.91% 3.97% 1.20% 6.90% 1.95x
Enel SpA IT 4.80% 8.13% 8.88% 4.99% 4.60% 11.70% 2.62x
Engie SA FR 1.38% -3.13% -4.47% 5.02% 1.00% 2.80% 2.48x
E.ON GER -0.85% -30.39% -35.28% 3.27% 7.70% 150.50% 3.22x
SSE PLC UK -11.87% 19.42% 18.63% 6.66% 7.70% 14.30% 3.43x
Iberdola UK 4.84% 7.99% 2.08% 5.12% 1.90% 8.20% 4.28x
Verbund AG AUT 4.10% 5.25% 7.19% 1.50% 3.30% 6.40% 2.26x
EVN AG AUT 4.71% 16.18% 32.58% 2.75% 5.00% 9.50% 1.57x
Min. -11.87% -30.39% -35.28% 1.50% 1.00% 2.80% 1.57x
25% percentile 0.74% -4.20% -6.33% 3.14% 1.73% 6.78% 2.18x
Median 2.74% 6.62% 4.63% 4.48% 3.95% 8.85% 2.55x
Mean 1.05% 2.01% 2.21% 4.16% 4.05% 26.29% 2.73x
75% percentile 4.73% 10.14% 11.32% 5.04% 5.68% 12.35% 3.27x
Max. 4.84% 19.42% 32.58% 6.66% 7.70% 150.50% 4.28x
EURm Enterprise
Country Equity Value Beta EV / EBIT EV / EBITDA
Company Value
31.12.2017 31.12.2017 2017 2018F 2019F 2020F 2017 2018F 2019F 2020F
Innogy SE GB 31,071 18,153 0.63 16.62 x 11.46 x 11.44 x 11.31 x 7.17 x 7.42 x 7.31 x 7.17 x
Enel SpA AU 108,980 51,916 0.92 11.13 x 10.51 x 9.88 x 9.46 x 6.96 x 6.70 x 6.37 x 6.15 x
Iberdrola SA ES 79,013 40,811 0.78 29.13 x 15.11 x 13.90 x 13.24 x 10.80 x 8.78 x 8.22 x 7.82 x
Electricite de
FR 68,933 30,364 out 12.23 x 11.62 x 10.33 x 9.57 x n/a 4.62 x 4.34 x 4.05 x
France SA
E.ON SE US 32,288 19,944 1.26 7.02 x 11.12 x 10.76 x 10.36 x 6.52 x 6.62 x 6.34 x 6.17 x
SSE PLC GB 22,922 15,082 0.95 10.03 x 11.35 x 11.01 x 10.91 x 6.47 x 7.90 x 7.63 x 7.55 x
Verbund AG GB 6,367 3,414 0.48 16.12 x 13.80 x 10.71 x 9.20 x 7.08 x 7.88 x 6.72 x 6.09 x
EVN AG GB 4,209 3,004 0.39 12.14 x 12.47 x 13.11 x 13.05 x 5.83 x 6.82 x 6.97 x 6.89 x
Engie SA IT 63,141 34,910 0.91 22.40 x 11.44 x 10.71 x 10.14 x n/a 6.61 x 6.32 x 6.11 x
Median 32,288 19,944 0.85 12.23 x 11.46 x 10.76 x 10.36 x 6.96 x 6.82 x 6.72 x 6.17 x
Average 46,325 24,177 0.79 15.20 x 12.10 x 11.32 x 10.81 x 7.26 x 7.04 x 6.69 x 6.44 x

Company Transaction Analysis – European Utility Peers
1 2 3 4 5 6 7
Revenue CAGR EBITDA CAGR EBIT CAGR Div. Yield ROA ROE Net Debt/EBITDA
Innogy SE GER 2.24% 7.84% 7.25% 4.45% 3.50% 8.00% 3.84
European Peers
EDF FR 1.27% -7.38% -11.91% 3.97% 1.20% 6.90% 1.95x
Enel SpA IT 4.80% 8.13% 8.88% 4.99% 4.60% 11.70% 2.62x
Engie SA FR 1.38% -3.13% -4.47% 5.02% 1.00% 2.80% 2.48x
E.ON GER -0.85% -30.39% -35.28% 3.27% 7.70% 150.50% 3.22x
SSE PLC UK -11.87% 19.42% 18.63% 6.66% 7.70% 14.30% 3.43x
Iberdola UK 4.84% 7.99% 2.08% 5.12% 1.90% 8.20% 4.28x
Verbund AG AUT 4.10% 5.25% 7.19% 1.50% 3.30% 6.40% 2.26x
EVN AG AUT 4.71% 16.18% 32.58% 2.75% 5.00% 9.50% 1.57x
Min. -11.87% -30.39% -35.28% 1.50% 1.00% 2.80% 1.57x
25% percentile 0.74% -4.20% -6.33% 3.14% 1.73% 6.78% 2.18x
Median 2.74% 6.62% 4.63% 4.48% 3.95% 8.85% 2.55x
Mean 1.05% 2.01% 2.21% 4.16% 4.05% 26.29% 2.73x
75% percentile 4.73% 10.14% 11.32% 5.04% 5.68% 12.35% 3.27x
Max. 4.84% 19.42% 32.58% 6.66% 7.70% 150.50% 4.28x
Comparable M&A Transactions Valuation Multiples

EV / EV / EV /
Announcement Enterprise LTM LTM LTM LTM
Acquirer Name Target Name Date Value Revenue Revenue EBITDA EBIT
PGE Polska Grupa Energetyczna S.A. PGE Energia Ciepla S.A. (former EDF Polska S.A.) 17.05.2017 1.015 1.104 0,92 x 4,06 x n.a.
Endesa, S.A. Enel Green Power Espana S.L. (60% Stake) 27.07.2016 2.036 262 n.a. n.a. n.a.
Macquarie Group Limited; Wren House 2.500
n.a. n.a. n.a.
Infrastructure Management Limited Electrica de Viesgo SA 28.11.2014
E.ON SE Enerjisa Enerji A.S. (50% Stake) 03.12.2012 4.500 1.513 2,97 x n.a. n.a.
HERA SpA ACEGAS SpA 28.08.2012 552 543 1,02 x 4,76 x 10,51 x
China Three Gorges Corporation Energias de Portugal S.A. (21.35% Stake) 22.12.2011 29.199 14.171 2,06 x 8,08 x 14,15 x
Iberdrola SA Iberdrola Renovables SA (20% Stake) 23.03.2011 12.914 2.241 5,76 x 8,87 x 18,77 x
75th Percentile 8.707 2.059 2,97 x 8,28 x 16,46 x

Median 2.500 1.308 2,06 x 6,42 x 14,15 x
Average 16,46 x
25th Percentile 1.526 683 1,02 x 4,59 x 12,33 x

Appendix C: Add-hoc news
List of recent news of Innogy
1 2 3 4 5 6 7
May 10th 2018: innogy Boards Submit Reasoned Statement Concerning E.ON/RWE Transaction
The executive board and the supervisory board do not give a recommendation to innogy’s shareholders. Both believe that the offer is fair in absolute terms but a definitive
assessment of the relative value is currently not possible. Uwe Tigges, CEO of Innogy SE is “extremely concerned that the job cuts planned by E.On will be unilaterally
pursued to the disadvantage of the Innogy employees.” Other questions concerning the integration process and innogy SE’s brand value are among the most fiercely
debated.
April 27th 2018: Takeover Offer for innogy SE by E.ON Verwaltungs SE Published
E.ON Verwaltungs SE published its cash offer for innogy’s no-par value bearer shares at EUR36.76. In addition, innogy’s shareholders will receive dividend payments for
fiscal year 2018, which are expected to amount to EUR1.64 per share.
April 24th 2018: Four Supervisory Board Members Elected at Annual General Meeting
Erhard Schipporeit, who had previously been appointed to the supervisory board by the Essen district court, was elected as shareholder representative and chairman of
the board. Monika Krebber, Markus Sterzl and Jürgen Wefers will act as employee representatives.
April 3rd 2018: GBP1.5B Offshore Wind Farm “Galloper” Switches on all Turbines
The project was completed within budget and ahead of schedule since it began in November 2016. All 56 6.3MW turbines are now generating enough renewable
electricity to power 380,000 homes. The project is expected to run for the next 20 years.
March 26th 2018: innogy takes 300MW share in “Dublin Array” Offshore Wind Farm Project
The German company’s Irish subsidiary established a strategic partnership with Saorgus Energy to develop a 600MW offshore wind project in Ireland. The next planning
phase will be led by innogy.
March 15th 2018: innogy acquires Italian onshore wind park “Deliceto”
Following this acquisition innogy Italia now has a total wind energy capacity of 90MW. Innogy and the Italian seller Imprese e Sviluppo have agreed to keep the transaction
price confidential.

Appendix C: Add-hoc news
List of recent news of Innogy
1 2 3 4 5 6 7
February 15th 2018: innogy Acquires Croatian Gas Grid and Retail Company Montcogim-Plinara
Moncogim-Plinara’s reported 2016 revenues of EUR11.4M, supplying 11,000 customers. As a result of the acquisition Innogy now becomes the third-largest gas utility
company in Croatia. The purchase price was kept confidential.
February 14th 2018: Expansion of Solar Business in Australia

Innogy SE acquires two large scale solar development projects from Overland Sun Farming in Australia. Projects “Limondale” and “Hillston”, located in New South Wales,
have a combined capacity of 460MW. Terms and conditions of the transaction will be kept confidential but the planned investment volume will total more than EUR400M.
innogy’s subsidiary BELECTRIC will be in charge of construction, operation and maintenance for both projects.
January 1st 2018: Project Pipline Totals 5,000MW of Future Renewable Energy Capacity
Growth projects include the 860MW Triton Knoll offshore wind project in the UK, 400MW of wind energy projects in Thuringia, Germany and an onshore wind pipeline in
the US totaling 2,000MW. These and other projects are in various stages of development. Additionally, innogy will continue to invest in photovoltaics as a key area for
growth.
December 22nd 2018: City of Hürth signs Concession for the Supply of Energy until 2037
Energieversorung Hürth GmbH won the tender procedure and will lease the concession rights to Westnetz, a subsidiary of innogy SE. innogy also holds a 24.9% stake in
Energieversorgung Hürth GmbH.

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Equity Research 12.06.

Innogy (IGY:DE) HOLD

 Regulatory Environment: Even though the “Energiewende” legislation leads to

Figure 2: Revenue performance 1 Business Description

Figure 6: Under-construction renewables

Innogy`s new growth plan

in GW 2 Industry Overview and Competitive Positioning

Figure 10: Levelized Cost of

Figure 13: Segment revenue peer

Grid & Infra Renewables Future Strategic Positioning of Innogy

Digitization – Intelligent Energy Network

40 Decentralization – Energy Management

Figure 17: Shareholder structure 3 Management Team & Corporate Governance

Grid & Gundre-

Initial acceptance period 27 Apr – 6 Jul

Sources: Company data, WUTIS analysis

1) Including On- and offshore wind power, solar and hydro

Target Price 4 Investment Summary

Figure 22: Figure X: Revenue 5 Financial Analysis

Figure 26: Net Debt/EBITDA

Figure 30: DCF estimate

1.0% 57.3 43.8 34.0 26.7 20.9

in EURm SOTP Bridge

Figure 37: Innogy power generation

Onshore Wind Offshore Wind

8.1 Financial tables

Cash & Diluted

8.2.1 DCF – Base Case

% of EV 50% 5.9% 6.9% 7.9% 8.9% 9.9%

Retail G&I Renewables Gross Profit % EBITDA % EBIT %

8.2.2 Working Capital Schedule

8.2.3 DCF Parameters

Peer Group Selection Innogy Beta

Beta Market Net Tax Unlevered

Median 0,91 25.154 20.287,50 25% 0,51

Unlevered Target Target Average Relevered

Appendix B1: Valuation: DCF Parameters – Cost of Capital

Source: Team Calculations

Weighted Average Cost of Capital

GDP growth and inflation rate Germany and Western Europe

8.2.4 DDM Cost of Equity

DPS EPS Payout Ratio

8.2.5 Sum-Of-The-Parts (SOTP) Analysis

8.2.5 Npower/SSE merger

8.2.5 SOTP Peer Group

8.2.6 Relative Valuation – Trading Comps / Peer Group Benchmarking

EURm Enterprise Equity

8.3 List of recent news of Innogy

Ownership and material conflicts of interest:

Position as a officer or director:

Target Price: € 35.36

- 0 - | Valid until 30/06/2018 © Equity Research / wutis

Lukas Parham Jan Jehona Thomas Johannes

Director Associate Analyst Analyst Analyst Analyst

 BSc. (WU) – 2nd Sem.

Innogy will be acquired at

- 22,7% rel. perf.

€35.97 Current Share Price

- 2 - | Valid until 30/06/2018 © Equity Research / wutis

Key investment highlights 1

Innogy further strengthens focus on its high potential renewables

Smart technology solutions and new data-driven operating units

- 3 - | Valid until 30/06/2018 © Equity Research / wutis