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It was another positive quarter for the wind sector, with European wind equities up 11% compared with a 6.9% decrease in the FTSE Eurotop 300 index (above). Nordex and Vestas were the key contributors to the sector's performance, up 30.8% and 11.8%, respectively, with Nordex's share price one of the top performers in Europe for the year to date. It posted strong gains mid-quarter on the back of earnings upgrades and quarterly results.

Choppy global equity market conditions during the last quarter also led to an overall share price decline in India, with the broad market down 8.2%. Suzlon's share price fell more sharply, dropping 31.4% from its previous heights. Over the last month, Suzlon has traded in line with the Indian market, but that has still been a downward drift. Even so, over the period since September 2005, the relatively "smaller/newer" wind companies tracked in the Windpower Monthly Equity Index -- Nordex, Repower, Suzlon and Clipper -- have as a group continually outperformed the industry's big boys, Vestas and Gamesa.

Beyond the equity markets, continuing high oil prices combined with strong demand for wind turbines provide the backdrop for a currently favourable environment for the wind turbine manufacturers. In market conditions like these, companies not being able to deliver strong increases in sales and profitability would be companies to worry about.

So there was little surprise in the positive fourth quarter 2005 and first quarter 2006 results announced during the last few months. Even Vestas, for whom the question of ongoing profitability appears to be part of its very fabric, delivered good news -- or at least the absence of bad news -- in its maiden quarterly results announcement. Moreover, with rising share prices, continued positive investor sentiment and the need to shore up balance sheets and invest for future growth, Vestas was one of a number of companies, including Repower and Nordex, which came to the market to raise capital.

Another theme of the last quarter was corporate restructuring. While market chatter about Gamesa's future as an independent company continues, the wind power developer and equipment supplier sharpened its corporate focus on wind, having finally been able to sell its aeronautics unit, weeks after announcing the sale of its advanced services companies. But perhaps the more dramatic news came with Suzlon's acquisition of the Hansen Transmission business. This not only materially increases the size of its business, but should have reverberations across the sector over the medium term. It will perhaps be viewed as being as significant, if not more so, than GE's and Siemens' acquisitions of turbine manufacturers.

Aggregate analyst recommendations for the sector changed little from the previous quarter. A number of individual status changes occurred, however, such as an upgrade for Vestas, while other recommendations moved back from "buy" to "hold" as some share prices rose to the level of analyst price targets.

Vestas' results, both for full year 2005 and first quarter 2006, were met with a mixture of relief and satisfaction. The market judged Vestas' explanation of the key variations in its 2005 results as satisfactory and took it on trust that the company would refrain from delivering further unwelcome surprises. First quarter results were above consensus expectations, with 2006 guidance reaffirmed, with most analysts labelling the improvement as the foundation stone of a new, credible Vestas. Not all agreed. Some saw the first quarter results as inconclusive and inadequate grounds for extrapolation. Meanwhile, the company raised EUR 190 million from the sale of shares, an amount which again divided analysts, with some delighted the number was smaller than expected, while others feared it was perhaps not adequate to meet the stated needs. As ever with Vestas, the question is: what happens next?

Nordex continued its strong share price rise. During April and May the shares enjoyed a phenomenal run, briefly rising above EUR 20/share on the back of profit upgrades for the coming year and strong first quarter results. The company raised around EUR 70 million through a shares sale during this period -- the offering was done in a conjunction with the sale of shares from its core shareholders, who jointly retain approximately 56% of the share capital. These core shareholders, including Capital Management-Partners, Goldman Sachs, and Morgan Stanley, will enter into a lock-up agreement under which they agree not to dispose of any additional shares for six months.

Repower also announced first quarter earnings exceeding expectations and raised capital during the quarter, with gross proceeds of more than EUR 80 million. Strategic investor Areva participated and now owns more than 25% in a different trend than in Nordex, where the core shareholders have sold down their position.

Suzlon's shares have enjoyed a meteoric rise since listing, though have suffered since our last Windicator (Windpower Monthly, April 2006). The acquisition of Hansen, however, made it a strong quarter-year for the company from a purely commercial perspective. There is no doubt that adverse equity market conditions over the period are behind the decline in Suzlon's share price, but it may also be that investors needed a break after such a sustained period of increase.

The key news around Gamesa was the sale of its divisions. First quarter results were viewed as being weaker than expected, with the wind farm development division catching the blame. American Clipper, meanwhile, announced its first year end accounts as a publicly-listed company, named a new chief financial officer, and announced a new patent for its variable speed wind turbine technology (page 61).

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