Windicator: Best quarter for turbine manufacturers in years

Worldwide: The first quarter of 2014 was the most upbeat in recent memory for wind-turbine manufacturers as all five companies that are followed by the Windicator posted impressive results.

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A slew of positive earnings announcements, many of which caught analysts off guard, provided the strongest indication yet that the industry has turned a corner after overcapacity and intense competition hit sales and forced firms to slash costs.

By early June, company share prices had risen by an average of more than 60% and sentiment towards the sector was bullish, with 48% of all ratings a "buy" and 29% a "sell". In March, these figures were 30% and 34% respectively while a year ago they were 20% and 27%.

Vestas led the charge, beating expectations in almost all areas. Its Q1 revenues were up 17% on last year, while its first-quarter operating profit of EUR 40 million ($54 million) marked a dramatic turnaround from the EUR 108 million operating loss it posted for the same period last year.

Its Q1 net profit of EUR 2 million surprised analysts, most of whom had forecast the company to register another quarterly loss — it recorded a net loss of EUR 151 million a year ago.

The earnings before interest and tax (EBIT) margin was 3.1% compared with -9.9% last year, while free cash flow increased by EUR 36 million to -EUR 24 million. The only downside was a lower earnings-per-order, although orders themselves were higher.

The figures, which were hailed by analysts as a definitive turning point in Vestas' fortunes, followed a major cost-cutting programme in which the company shed more than 5,000 jobs, closed factories and sold unprofitable businesses.

The Danish firm is now aiming to push into China and emerging markets such as India and Brazil. Vestas' share price had climbed 77.9% over the first five months of the year to reach its highest point since April 2010. By early June, 58.8% of analysts rate the company's stock as a "buy", up from 46.7% in March and 31.8% in June 2013.

Spanish manufacturer Gamesa published a strong set of figures that also defied analysts' predictions. Its Q1 revenues of EUR 573 million were almost 17% up on the equivalent period in 2013, with operating profits up by 57.7%. However, contrary to some reports, Gamesa will not be updating its full-year guidance on returns: sales rose by more than a quarter to 567MW of turbines, in line with its prediction of full-year sales totalling 2.2-2.4GW.

Gamesa's Q1 net profit of EUR 17 million was up from EUR7 million last year and well in excess of the EUR 13.2 million average forecast in six analyst opinions compiled by Bloomberg. The EBIT margin was 6% (compared with 4.4% in Q1 2013), in line with guidance for the year of above 6%, while net financial debt fell 10% to EUR 655 million.

The company's recovery was supported in particular by contribution to sales from India (33%) and Latin America (37%); the recovery in the US, which increased its contribution to 21%; emerging markets such as the Philippines, Turkey and Sri Lanka; and sales of the 4.5MW-5.0MW platform in Finland. Gamesa's share price had risen 19.1% for the year to 2 June, with analysts less bullish about the company's prospects than those of Vestas: 23.5% were recommending a "buy", up slightly from last quarter.

German manufacturer Nordex boosted full-year projections after a better-than-expected performance in the first quarter. Sales were up 64% on last year, resulting in a dramatic turnaround in operating performance from a EUR0.6 million loss in Q1 2013 to a EUR 21.1 million profit in the first quarter of this year. The company posted a Q1 net profit of EUR 9.1 million, compared with a net loss of EUR8.4 million a year ago, while its EBIT margin rose from -0.2% to 5%.

Immediately following the publication of these figures, Nordex' management board raised its full-year sales and EBIT guidance. The company is now looking for sales of EUR 1.5-1.6 billion versus its previous prediction of EUR 1.4-1.5 billion. Annual EBIT margin is now forecast to reach 4-5% compared with its prior guidance of 3.5-4.5%.

Nordex's stock is regarded as the most attractive among the five companies tracked by the Windicator, with 66.7% rating it a "buy" at the beginning of June. This is more than double its number of "buy" ratings at the beginning of March. The company's share price rose 67% over the first five months of the year.

The good news even extended to include India's beleaguered Suzlon, which revealed a three-fold reduction in quarterly net losses. Its Q1 net loss of INR 6 billion ($103 million) compared with one of INR 19.1 billion in 2013 and came on the back of a 53.7% increase in quarterly revenues. It posted an operating profit of INR 1.5 billion — its first operating profit for seven quarters, reversing an operating loss of INR 7.6 billion a year ago.

The results mark a significant turnaround from last quarter, when Suzlon's ongoing difficulties prompted its auditors to raise a red flag over the company's ability to generate adequate cash flows to support operations. In its latest earnings announcement, Suzlon alleviated these concerns by revealing that it mopped up more than INR 7 billion by selling two non-core assets. Suzlon realised about INR 5.50 billion from the sale of the US-based Big Sky wind farm and around INR 1.7 billion by offloading stake in a Chinese manufacturing facility.

Suzlon's stock had risen by more than 130% for the year to 2 June to reach INR 22.4 per share - well above its all-time low of INR 5.7 per share reached in August last year but still more than 17 times below its all-time peak of INR 432.9 per share in November 2007. It attracted a "buy" rating among analysts tracked by Reuters for the first time since June 2012.

China's Goldwind completed a quorum of positive earnings announcements among the five listed turbine manufacturers tracked by the Windicator by announcing a 51% increase in revenue and net profits of CNY 57.1 million ($9.1 million), up from CNY 32.4 million in Q1 last year. Its EBIT margin rose from 2.7% to 4.1% over the period, while basic earnings per share rose by 56.5%.

Goldwind's share price had increased by 13.6% by early June, with almost 90% of analysts recommending investors buy or hold the stock.

The Feelgood Factor has not felt this good in a long time. Earnings at wind-turbine manufacturers are improving strongly and share prices reflect this. Meanwhile, wind's position relative to gas and nuclear is stronger. A big question mark lingers over US resolve, but that is not dampening wind's prospects in other global markets.

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