Windicator: Analysts remain pessimistic as investors face uncertainty over manufacturer values

WORLDWIDE: A number of wind-sector stocks rebounded in early 2012 from end-of-year torpor, but this was not enough to lift the gloom among analysts acutely aware how investor sentiment towards wind-turbine manufacturers declined in the final months of 2011 and continued to flounder into the beginning of the new year. All companies surveyed this quarter suffered significant declines in stock price over the year, reversing gains made in the first few months of 2011.

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Analysts surveyed this quarter are more pessimistic about the industry than at any point last year: only 20.3% of all recommendations are "buys", 38.1% are "holds" and 41.5% are "sells". Things have changed since the first quarter of 2011, when buys were in the majority.

Due to differences in reporting practices, not all firms posted fourth-quarter figures - and some of those that did probably wished they did not have to.

Vestas, whose fortunes frequently typify those of the industry as a whole, in February reported year-on-year declines in Q4 revenues and earnings before interest and taxes (EBIT) of 34.7% and 88.9% respectively. This resulted in an overall Q4 net loss of EUR76 million, a precipitous slide from the EUR151 million net profit it reported in Q4 2010. A similar dichotomy was evident in the company's full-year figures: Vestas posted a net loss of EUR166 million for 2011, compared with a net profit of EUR156 million in 2010. The loss was significantly worse than the company forecast.

If this were not bad enough, investors also had to contend with a 67.9% loss in Vestas's market value during the course of the year, contributing to a 90% nosedive in the company's stock price since its August 2008 peak. Performance like this tends to have consequences, and in January Vestas announced it was shedding 2,300 jobs, or 10% of its workforce. Shortly after this, the company revealed that chairman Brent Carlsen and chief financial officer Henrik Norremark would be leaving the firm, sparking a sudden exodus of talent that included two other board members and four division heads. The general view among analysts is that Vestas significantly overstretched itself in its bid to expand into overseas markets and is now wearily picking up the tab for those excesses. Just under 15% of analysts currently recommend Vestas as a "buy", compared with more than 40% mid-last year.

Nordex has yet to publish its final figures for both Q4 and full-year 2011, but preliminary results show that Q4 revenues were EUR253 million, down 29.3% from Q4 2010. There was more pain further down the income statement, however, where Nordex reported a Q4 EBIT loss of EUR21.2 million - a 193% decline from its Q4 2010 EUR22.8 million operating profit. For 2011 as a whole, the company posted an operating loss of EUR29.7 million, including one-off expenses of EUR19.4 million, which compared to an operating profit of EUR40.1 million in 2010. Nordex was still calculating its net income figures for Q4 and the year as a whole when Windpower Monthly went to press.

Nordex says the reasons for its disappointing performance were threefold: a relatively low order book at the beginning of the year; deferrals in some European projects from the second half of 2011 to the first half of 2012, which meant that only a small part of the associated revenue could be booked; and finally, lower sales in China due to the "reluctance of Chinese consumers to deal with non-Chinese manufacturers".

In 2011, around 5% of Nordex's total sales were in China, down from about 8% in 2010. Nordex's share price declined by just over a third in 2011 and analysts remain very sceptical about the company's prospects, with only one out of 15 tracked by Reuters recommending a "buy".

There was slightly better news for two of the other major listed companies, Gamesa and Suzlon.

Spain's Gamesa reported a 4% increase in Q4 revenues to EUR1.02 billion and an 11.3% increase in EBIT to EUR49 million. But performance was less impressive at the bottom line, where net profits for the quarter came in at EUR22 million, down from EUR25 million in Q4 2010. For the full year, Gamesa posted 10% increases in both revenues and operating profits, and a 2% increase in net profits.

Not that any of this impressed investors: Gamesa's share price fell by 46.8% over the course of 2011 and another 28.4% in the first few months of 2012, reaching its lowest price since the stock's initial public offering in 2000 - reflecting wider concerns about the ability of wind-turbine manufacturers to maintain performance amid intense competition in developing markets. Like Vestas and Nordex, Gamesa has invested heavily in expansion into markets such as Brazil, India and China after spending cuts and recession dampened growth prospects in developed markets.

Last month, Gamesa cut its sales forecast for this year to around 3GW of turbines from about 3.25GW, with chairman Jorge Calvet citing price pressure in China, which accounted for just under a quarter of Gamesa's revenue from wind turbines last year.

However, analysts are more upbeat about Gamesa's medium-term prospects than any of the other surveyed companies, with 33.3% recommending the stock for a "buy" and a further 36.7% recommending a "hold".

India's Suzlon mirrored Gamesa in posting solid performance in the top half of the income statement: its Q4 revenues increased 10.7% on Q4 2010, while its EBIT mushroomed to INR 1.82 billion ($36.5 million) from INR 734.2 million over the same period - a rise of 148.3%. However, Suzlon posted a net loss of INR 2.86 billion in Q4, a worse performance than its Q4 2010 INR 2.53 billion net loss. By far the biggest factor in this extreme divergence between operating profit and net loss was the company's interest payments, which totalled INR 3.57 billion in Q4 alone.

Suzlon says it is hopeful of meeting its enormous debt obligations by selling non-core assets, increasing order inflow and recovering dues from customers. Analysts, though, are sceptical about this and expect the company to seek additional sources of funding, including the possible sale of a stake in its wholly-owned subsidiary Repower. 28.6% of analysts recommend investors buy Suzlon stock and 38.1% mark it as a "hold", making it the second-most favoured stock among those surveyed after Gamesa. Suzlon's share price declined by two-thirds in 2011 before rallying in early 2012.

China's Goldwind did not publish quarterly figures, but its full-year preliminary report showed that its bumper 2010 profits were virtually wiped out in 2011. On the back of a 26.9% slump in revenues, Goldwind posted operating losses of 74% and a loss of net income of 73.5%. Goldwind did not comment further on the figures, but analysts blame the company's difficulties on a combination of the slow wind-power market, falling prices for wind turbines and uncertainty in the domestic Chinese wind market on the back of new regulation.

Goldwind's share price declined by 64.1% in 2011 before recovering slightly in early 2012. Only two out of 18 surveyed analysts currently post a "buy" rating on Goldwind's stock, with seven "holds" and nine "sells".

Neither quarterly nor full-year data was available for Repower as the magazine went to press.

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