Healthy figures but confidence missing -- Gamesa results

Signals coming from Spanish wind turbine producer Gamesa could hardly be more mixed. On October 22, the company announced EUR 288 million net profits for the first nine months of the year, tripling the figure for the same period in 2007. Yet, on the Madrid stock exchange, Gamesa's share value plummeted 22.3% to finish the day at EUR 14.01 and continued to fall sharply for the rest of the week, leaving analysts grappling for explanations for why the stock was out favour.

The main reason for the precipitous fall in the share price lies with the Madrid stock exchange, which suffered its second biggest all-time drop on the same day that Gamesa released is third quarter results. Even so, Gamesa's price declined more than any other listing on Ibex, Spain's index of 30 prime shares. Another reason lies in an extraordinary item included in the net results, EUR 145 million from the sale of Gamesa's solar division. But even after subtracting that capital gain, profits were still a healthy 51% higher than a year ago.

Meanwhile, Gamesa's chief executive, Guillermo Ulacia, insists that even amid the global financial turmoil, none of the company's clients have revealed problems with financing the projects they are intending to equip with Gamesa turbines.

The company reports a 22% increase on turbine sales to 2853 MW compared with the same period last year, with 90% going to China, the US and Europe. So far this year, Gamesa has produced 3600 MW of turbines, which was previously its target for end-2008. The company says it sold more than 1000 MW during July-September, the second time in succession that it has broken the gigawatt mark in a single quarter.

Lack of guidance

Analysts attribute the drop in share price to Gamesa's failure to provide guidance for 2009 or its strategic 2009-2011 plan, which has been widely anticipated by market watchers. Fortis Bank interprets this as "a clear sign of uncertainty," but nonetheless maintains its "buy" recommendation. US investment bank Piper Jaffray also has Gamesa marked as a "buy" and says it expects the company's strategic business plan to be published before the end of the year.

Analysts at both companies take Ulacia at his word that a planned six day shutdown of all 35 Gamesa facilities globally is due not to cancelled orders but a "production adaptation." Such confidence seems backed by Gamesa's 11.5 GW order book to 2012. Piper Jaffray notes that EUR 6 billion of that is guaranteed by banks and placed mostly by large, financially fit utilities across Europe. Keeping up the pace, rather than poor fiscal health, seems Gamesa's biggest challenge for now.

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