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Stock market trading from the Windicator

It was a buoyant quarter for the listed wind manufacturers, with the sector adding an additional EUR 4.5 billion to its total market capitalisation of EUR 14.9 billion as of March 10. Indian wind turbine manufacturer and Windicator newcomer Suzlon Energy was a top performer, up 58.3% since early December, outperforming the 21% increase for the Bombay Stock Exchange (BSE) SENSEX 30 index over the same period (right). The European-listed wind manufacturers also outperformed the broader stock market (below right), posting a 36.1% increase compared with 7.0% for the FTSE Eurotop 300.

Four macro factors helped drive positive performance across the sector. Two of them -- favourable sentiment from high oil prices and takeover rumours -- come and go, and have little to do with the nuts and bolts of the wind industry. The third factor -- the perception that it is now a "seller's market" for wind turbines, with demand outstripping supply -- appears to have more basis in industry specifics, but can also sometimes be extrapolated too far by analysts and investors alike. The same can be said of the fourth factor, which is the sense that somehow all manufacturers will increase their market share. The author Garrison Keillor described his fictional town of Lake Wobegon as being a place where "all the children are above average." Just as this cannot be, neither can all manufacturers win a larger share of the global cake. Every gain has to come at another's expense. In periods of strong share price performance when analysts are looking to understand, and perhaps sometimes justify, robust share prices, that fact can be forgotten. All the companies, to varying degrees, benefited from the updraft.

Suzlon's shares rose sharply in late January following a strong quarterly performance report and the announcement of two large international orders, from the US and Australia, for a combined 250 MW. Analysts cited these orders as not only improving future visibility of earnings but also demonstrating Suzlon's success in meaningfully expanding beyond its leadership position in India, the fourth largest wind market. Suzlon's ongoing expansion of production and component capacity was also perceived as well timed, attracting new equity analyst coverage during the quarter. Its market-friendly results presentation, including a transcript of the analyst conference call, was welcome. Suzlon's market capitalisation has now risen to more than EUR 7 billion, almost as large as that of all the other listed manufacturers combined.

Purely in terms of stock market performance, the European listed companies traded in two distinct groups over the last quarter. In one group are Nordex, Repower and Clipper, which maintained their strong positions, posting remarkable gains of 75%, 45.5% and 53.6%, respectively. The three companies' shares moved broadly in tandem over the period, with Nordex's share price shooting up sharply beyond the others in late January when, among other news items, there was market talk of a potential takeover of Vestas. Gamesa and Vestas formed the other trading group. Both posted strong quarters and recouped the relative share price underperformance of the previous quarter with gains of 23.7% and 33%, respectively.

The Nordex equity story revolves around the company's emergence from its successful recapitalisation and indication that its results for 2005 should be better than expected. Orders in Italy and Scotland provided further good news. For Repower 2005 was the first time it generated more sales outside Germany than domestically. The company also installed Bertrand Durrande, a representative of major shareholder French state-owned Areva, as chairman of its supervisory board and announced a planned capital increase to fund growth. Clipper had limited news flow during the quarter, other than disclosing that it had been notified that certain institutional investors had interests in large blocks of the company's stock.

Vestas assumed its now all too familiar position as the sector's "question mark." Concerns about expense management, key supplier relationships, lingering NEG Micon integration issues, potential capital increases and profit warnings, market share dynamics and overall profit generation were rife. Prior to announcement of its full year 2005 results, investors and analysts mainly sat on the sidelines. Gamesa appears to have provided a slightly worrying precedent for Vestas. It announced lower than expected 2005 results and surprised some analysts with the limited guidance provided for 2006. Gamesa and Vestas' shares fell in mid-January as a result. The prospective sale of Gamesa's aeronautical unit, however, and further strategic guidance from the company could offer positive news flow and clarity going forward.

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