So where is wind in the midst of this storm? On the one hand it seems to remain one of the safer places to be. As the Windpower Monthly equity index (right) demonstrates, the wind sector has enjoyed years of significant out-performance against the broader market. Among the listed European turbine manufacturers, share prices have appreciated more than 300% in the past three years while the broader market has essentially been flat. For the quarter through to September 5, the sector continued to outperform, only falling 11.2% while the broad European market was down 14.1%. While this was the first quarter in some time with a decrease in wind industry share prices, doing better than the rest of the market is still out-performance.
Order books for manufacturers have continued to grow, most to record levels. The key themes around quality control, profitable (and predictable) growth and, for Gamesa and Clipper, the trend towards significant development partnerships, remain strong. It still feels like a bull market, and a market unto itself. Share prices might be down, but that is for external, non-wind specific reasons.
Caution still needs exercising. Wind industry order books and even analyst reports may not yet be affected by the economic storm-and that could be a matter of timing. A sustained disruption in the banking market must ultimately have an impact, whether on the level or the timing of sales. It will take a while for a proper understanding of how to price risk across the industry and for that understanding to have an impact. Ultimately, the market will be the best barometer. So far it remains positive, as do the analysts.
Vestas and Gamesa
In terms of individual company performance, Vestas was down 9.5% for the period. Of its peers this was one of the best performances, with much of that due to its second quarter results. While the bottom line was at or around analyst consensus, it was the news that Vestas' backlog of orders had significantly increased to EUR 7.2 billion that caused a stir. Analyst sentiment was that this level of backlog provides a high level of visibility of where Vestas is headed the next two years, a rare commodity in a market full of profound uncertainty. There was even some speculation by analysts that Vestas could outperform, and possibly even revise upwards, its guidance figures. Other positive aspects of the Vestas results included a marked improvement in gross profit.
Gamesa's quarter was one of limited news flow but more than a fair measure of positive sentiment. Its shares fell 11.3%, less than the market as a whole, but this appears to be the only metric on which the company was down. More than 75% of the analysts covering the company have a "buy" recommendation on it (right). Half-year profits more than tripled, though the key driver for the rise was the sale of its solar business. The focus is even more on the future and the company's forthcoming strategic review in terms of growth strategy and direction. Other potential catalysts for share price growth include an increasing understanding and appreciation of the landmark order from Iberdrola for 4.5 GW of Gamesa turbines (Windpower Monthly, July 2008).
Nordex and Clipper
While Nordex progressed a step further in its institutional development and profile, on balance it was a challenging quarter for the company. Its shares closed down 28.5% for the period, having experienced large, event-driven movements throughout. A profit warning in early July sent its shares plummeting and led some analysts to downgrade their target prices and recommendations on the stock. Second quarter earnings were viewed as being in line with these revised expectations. Positive news arrived on two fronts. First a 425 MW multi-year order from Scan Energy, which boosted the share price almost 8%, the biggest one-day gain since January. Second, the uncertainty around Nordex's shareholder base was resolved when major shareholders, including CMP and Goldman Sachs, sold a 20% interest in Nordex to an investment company owned by Germany's Susanne Klatten, reportedly the country's richest woman.
The main driver for Clipper in the past quarter was a trading update on July 30, issued on conclusion of its program to repair turbine component defects and industrial reviews with its recent investor, One Equity Partners. Rising losses and a tumbling share price were somewhat offset by news of an expanded and tighter link with major customer BP and a big framework agreement for turbine purchases (Windpower Monthly, September 2008). But more news of component problems have just hit the share price again (page 31).
Suzlon and Repower took a big step forward with the announcement that Suzlon and Martifer had agreed terms for the purchase of Martifer's stake in Suzlon. Suzlon will now own about 90% of Repower (page 46). Repower's share price was further buoyed with news of strong first quarter profits and a near doubling of its order backlog compared with the previous year. Suzlon's shares underperformed over the period, down 16.1% versus 8.2% in the broader market. Analyst opinion is divided, with some concerned that near term order flows may be slowing due to a variety of factors including the announced blade quality problems (Windpower Monthly, April 2008). Many have revised their recommendations and expectations down to at least a "hold."