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Windicator: Stock Price Analysis

Two of the leading listed wind-turbine manufacturers have resumed dividend payments to shareholders in the clearest sign yet that the industry is finally emerging from the turbulent period that followed the 2008 financial crisis.

Denmark's Vestas and Spain's Gamesa both announced they will return a portion of their profits to investors after publishing strong 2014 results. Dividend payments are regarded as a sign of robust corporate health.

Germany's Nordex and China's Goldwind also posted strong preliminary annual results. Although Indian giant Suzlon was hit by a severe Q4 net loss, this was almost entirely attributable to the one-off sale of its overseas subsidiary Senvion for a considerably lower price than it originally paid for the German turbine manufacturer.

Revenues +4.7%
EBIT +5.0%
Q4 2014 compared with Q4 2013
Stock price +20.6%
Change Jan-Mar 2015
Q4 profit/loss +EUR194m

Vestas proposed its first dividend payment in 12 years as it announced an impressive set of annual results. The dividend of DKK 3.9 ($0.58) per share (equivalent to 29.5% of net profits) will be regarded as a clear sign that the company has turned itself around after a difficult few years in which it slashed costs and reduced its headcount by nearly 30%.

The announcement came after Vestas revealed it had achieved a profitable year for the first time since 2010. The company posted a full-year net profit of EUR392 million ($436 million), a major reversal of its EUR82 million net loss in 2013.

However, its fourth quarter net profit of EUR194 million was 11% down on the equivalent period a year earlier, despite a 4.7% increase in quarterly revenues and a 5% rise in operating profits (EBIT).

The company attributed the reduced net profit to a "less favourable project mix" in Q4 2014 and, to a lesser extent, the relative effect of "unusually favourable execution" in the equivalent period last year.

In its first indication of how it sees this year, Vestas said on 11 February it expects revenues of at least EUR6.5 billion, operating margin (earnings before interest and tax, divided by sales) before special items of at least 7% and free cash flow of at least EUR400 million.

All these figures were below what the company achieved in 2014, prompting suggestions from analysts that it is being overly conservative in its ambitions for 2015 and resulting in an immediate drop in its share price. The stock subsequently recovered somewhat to gain 20.6% over the first two months of the year. Overall, analysts' views on the company remain largely unchanged from last quarter, with just over 40% posting a "buy" rating on the stock.

Revenues +32.7%
EBIT +97.6%
Q4 2014 compared with Q4 2013
Stock price +38.9%
Change Jan-Mar 2015
Q4 profit/loss +EUR37.0m
*Wind turbine division only

Gamesa also resumed dividend payments to shareholders after announcing strong full-year 2014 results.

The company said it would restart dividends at a payout ratio of 25% following a two-year restructuring plan that helped to double net profits. It launched an overhaul of the business in 2012 and has steadily recovered since, thanks to greater business diversification and expansion overseas. Full-year profits for 2014 were EUR101 million compared with EUR51 million in 2013.

The Spanish company had a particularly strong fourth quarter, with revenues up 32.7% and operating profits up 97.6%. Its Q4 net profit of EUR37 million was more than double its EUR15 million net profit in the same period last year. Gamesa upgraded its 2015 forecast on the back of its 2014 performance. The company expects sales to be within the 2.8-3.1GW range (compared with 2.2-2.4GW in 2013) and an EBIT margin of more than 8% (up from 6.7%).

Shares in the company jumped on the publication of the figures and on 27 February were up 38.9% for the year. At that time just under half of analysts following the company were posting a "buy" rating on its stock.

Revenues +28.5%
EBIT +49.1%
Q4 2014 compared with Q4 2013
Stock price +21.4%
Change Jan-Mar 2015
Q4 profit/loss +EUR11.0m

Nordex published its final results for 2014 in late March, revealing a 21% rise in full-year sales, a 76% increase in operating profits and an almost four-fold rise in net profits, from EUR10.3 million in 2013 to EUR39.0 million last year. The company also strengthened its balance sheet substantially, with net cash flow from operating activities increasing 63% to EUR160.3 million.

Nordex did not publish separate Q4 figures. However, a comparison of the full-year figures with its published results for the first three quarters of 2014 reveal a 28.5% increase in Q4 revenues and an almost 50% surge in operating profits.

Its Q4 net profit of around EUR11 million was more than double the EUR5.1 million net profit it posted in the final quarter of 2013. Nordex's stock gained 21.5% over the first two months of the year, but analysts have become less positive on the stock: only 42.1% currently rate it as a "buy", compared to 72.7% a quarter ago.

Revenues -16.5%
EBIT +20.8%
Q4 2014 compared with Q4 2013
Stock price -48.4%
Change Jan-Mar 2015
Q4 profit/loss -$125.1m

Unfortunately, the flow of good news from the wind turbine industry's leading European manufacturers did not extend to south Asia.

After some encouraging results earlier last year, Suzlon suffered a massive increase in Q4 consolidated net losses on the back of the sale of its overseas subsidiary Senvion. Its fourth quarter net loss of INR 65.4 billion ($1 billion) was more than six times that of its corresponding loss in Q4 2013 and came despite relatively flat sales and a major improvement in EBIT, where it achieved an operating profit of INR 382.2 million compared with an operating loss of INR 3.1 billion in the final quarter of 2013.

The sale of Senvion, formerly known as Repower Systems, to US company Centerbridge Partners was made at an INR 60 billion loss and accounted for almost all the quarter's overall net loss. Suzlon's decision to sell Senvion was made as part of its strategy to hive off non-core businesses and reduce its massive debt burden, which stood at more than INR 170 billion at the end of September.

However, there was some more recent good news for Suzlon when Dilip Shanghvi, the founder of India's Sun Pharmaceutical Industries, agreed in February to buy a 23% stake in the company for around $290 million.

The deal will provide Suzlon with much-needed liquidity, which the manufacturer said it will use to tap into opportunities in India and growth markets abroad. Media reports of Shanghvi's interest in Suzlon had already pushed the share price up and confirmation of the investment led to further gains. At the end of February, the stock had gained 90.4% since the beginning of the year.

Revenues n/a
EBIT n/a
Q4 2014 compared with Q4 2013
Stock price -7.9%
Change Jan-Mar 2015
Q4 profit/loss n/a

Like Nordex, Goldwind had not published its final 2014 results at the time Windpower Monthly went to press. However, its preliminary numbers included a 43.8% rise in revenues, a 331.5% increase in operating profits and a 327.8% gain in net profits, from CNY 427.6 million ($69 million) to CNY 2.1 billion ($341 million).

A lack of relevant quarterly data meant that it was not possible to calculate Goldwind's Q4 performance.

Its stock was the only one of those followed by Windicator to lose value early this year, falling just under 8% from the start of January to 23 February, but remained in favour with analysts, with two thirds giving it a positive rating.

Good start to year: wind major's stocks: analysts recently recommended few 'sell' ratings for five wind majors' stocks:

Upward trend continues in 2015 - annual analyst recommendations for majors' stocks combined:

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