Windicator: Share prices fail to reflect strong figures from turbine manufacturers

WORLDWIDE: During the three months ending 31 August, wind-turbine companies reported their strongest figures in several quarters. But judging by their share prices, someone forgot to inform equity investors. All of the companies surveyed during the second quarter -- with the exception of China's Goldwind -- experienced significant order inflows as recovery in the industry gathered pace, buoying profitability. However, firms lost an average of more than a fifth of their share-price value for the year to 31 August, despite the fillip most received in the wake of the Fukushima nuclear crisis in the spring.

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Meanwhile, analysts have become more pessimistic: just 30.7% of all recommendations are currently "buys", 31.6% are "holds" and 37.7% "sells" (see charts, overleaf). At the end of the first quarter, the figures were 46.1%, 28.7% and 25.1%, respectively.

The global macroeconomic situation was the primary cause of this strong contrast of performance and perception. Concerns about the sovereign debt crisis in the eurozone refuse to go away, while S&P’s downgrade of US debt in August was a genuinely momentous event that — although widely anticipated — led to near-uniform panic across markets. Add to this concerns that austerity measures among developed economies will put pressure on wind-turbine industry tariffs and the result was a near-perfect storm of negative sentiment.

Vestas typified the industry as a whole, posting excellent quarterly figures but losing a substantial chunk of its market value. Its Q2 revenue of €1.4 billion ($1.99 billion) was a 36% improvement on Q2 2010, while its quarterly earnings before interest and taxes (Ebit) of €77 million completely reversed last year’s Q2 €180 million Ebit loss. Vestas posted a net profit of €55 million for the quarter, compared to a net loss of €143 million in Q2 2010.

The figures beat analysts’ estimates and led to an immediate 28% rise in Vestas’ share price — the largest single jump in eight years. But the spike proved to be shortlived and was not enough to arrest the market decline that began at the beginning of April: 44.5% of Vestas’ value was wiped off in Q2, resulting in an overall decline of 36.5% for the first eight months of the year.

Gamesa mirrored Vestas’ combination of strong earnings figures and poor share-price performance. Its second-quarter revenue of €712 million ($1.03 billion) represents a rise of 27.1% on the same period last year, while Ebit surged 36% to €34 million. Net profits were up 6.6% for the quarter and 29% for the first half as a whole.

All of Gamesa’s sales in the first six months came from outside its native Spain: sales in Latin America increased four-fold to account for 19% of sales overall, while those in India increased 2.4-fold, accounting for 17% of the total. Not that any of this was enough to impress investors: Gamesa’s share price fell 23.3% during Q2 and was down slightly more for the year to 31 August.

The quarter heralded a major turnaround in fortunes for India’s Suzlon, which reported an 82.5% growth in year-on-year revenues. This was sufficient to turn an INR 9.12 billion ($198.3 million) quarterly net loss last year into an INR 601.2 million profit this year.

The company said that despite "challenges" in developed markets, the wind industry continues to grow, particularly in emerging markets and the offshore segment. It added that recent policy developments on energy security and safety concerns, such as the planned phase out of nuclear power in Germany and carbon pricing being introduced in Australia, have placed an increased emphasis on renewables — particularly wind — helping to create a positive outlook for the industry. However, despite rising 7.1% during the quarter, Suzlon’s share price was down 33% for the year to 31 August.
Germany’s Repower, part of the Suzlon group, posted a 23% surge in sales to €263 million in Q2. Ebit was €9.9 million — up from €1.5 million in the second quarter of 2010 — while net profits rose 138% to €4.2 million.

Repower credited the performance to a 15% increase in the number of turbines supplied in the second quarter (195MW) compared with the same period last year (169MW). A large part of this capacity is at Vattenfall’s 150MW Ormonde project off the UK coast, where the installation of 30 5MW Repower turbines was recently completed. Repower was the only company among those surveyed to register a share-price appreciation over the first eight months of the year, rising 22.1% despite a 12% decline in Q2.

Although revenue rose 10.4% to €220.1 million, Nordex reported a net loss for the quarter as structural costs and price pressures took their toll. Ebit fell 82% from €6.7 million to €1.2 million, turning a net profit of €3 million in Q2 2010 into a loss of €2.2 million.

The losses accompanied substantial rises in cost from higher staff numbers and other operating costs that placed a heavy burden on margins. The company has announced plans to cut personnel costs and other operating expenses by €50 million in the short term and is exploring strategic alliances in individual business areas to render them "more effective". Nordex now expects to report a low but positive EBIT for 2011 as a whole, but no longer expects an EBIT margin of 4% as originally forecast.

Goldwind’s share price fell to its lowest level since its initial public offering after the firm posted a first-half profit decline of 45%. Second-quarter revenues were 25.8% lower than a year earlier, while net profits slumped 65.3% over the same period. The company warned that profits for the first nine months of 2011 could fall to zero.

Goldwind blamed the declines on funding pressures brought by tight monetary policies and rising prices of raw materials. New industrial policies such as tightening approvals of new projects in China create more short-term pressure for wind-power companies, the firm said. Its share price fell 25.6% over the quarter and was down 47.0% for the year at the end of August.

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