Aeronautics dumped for renewables -- Stock market reacts positively to Gamesa's all wind decision

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Spanish wind giant Gamesa once again punched into the headlines of the financial press last month with news that it has dropped its aeronautical business to concentrate entirely on renewables. The group announced the merger of its aeronautical activities with Spanish stake-holding company Sepi, and engineering firm Sener, on March 13. The merger creates Spain's largest aeronautical group, NewCo, in which Gamesa aeronautics makes up 59%. "With this move Gamesa will concentrate all its efforts on maximising the growth of its renewable energy businesses, an expanding sector," says the wind company.

There is much to build on, according to glowing corporate results for end-year 2001. Combined turnover of the group's wind and aeronautical activities was EUR 1020 million and net profits closed 37% up on 2000's figure, at EUR 62 million. The results come at the end of Gamesa's first full year trading on the stock market and follow its decision in November to break with its wind turbine technological partner, Vestas of Denmark (Windpower Monthly, December 2001). Both decisions have come up trumps, at least in the short term, and now Gamesa is pinning its entire long term strategy on renewables.

The segregation of activities has been highly praised by analysts. After the announcement Gamesa shares went up 7.6% to reach EUR 19.7, their highest value since September 11. Credit Lyonnais, a bank, says Gamesa "has quickly realised that concentrating on renewable energy is the best strategy for competing with Vestas and other turbine manufacturers." The bank has now raised its recommended share price target of EUR 19 to EUR 22.

Analysts impressed

Gamesa's frenetic renewables activity prior to segregation was already impressing analysts UBS Warburg, which, following 2001's results, had raised its price target for end 2002 to EUR 21, from the EUR 16 of its previous report. UBS considers one of Gamesa's main competitive advantages to be its reduced costs, enabling it to sell turbines at a discount of between 12%-15% compared to other European manufacturers. Other attractions in UBS's eyes are the corporation's synergies and its large turbine orders portfolio, which Gamesa claims is a whopping 3570 MW. UBS says all this goes to make Gamesa Eólica "the most efficient turbine manufacturer in the world."

Wind accounted for 65% of Gamesa's corporate activities in 2001, reports CEO Iñaki Ganasegui. Gamesa Eólica's turbine sales accounted for 47.2%, while project development wing, Gamesa Energía, was behind 5.6% of business. The remaining 12.2% of non-aeronautical turnover came from Gamesa Servicios's plant services, with the vast bulk of business coming from wind plant operation and maintenance.

In 2001, Gamesa Eólica sold 1014 wind turbines, totalling 735 MW, and turned over EUR 482 million -- a 3% increase on the previous year. It also put 649 MW on-line, bringing its cumulative tally to 2124 MW. The national renewables producers' association APPA estimates Gamesa's market share in Spain at 75%.

Approximately 39% of all the capacity went to sister company Gamesa Energía, which put up seven new plant last year totalling 250 MW, or around 30% of Spain's new installed capacity. This turns Gamesa Energía into the country's second largest developer after Energía Hidroeléctrica de Navarra (EHN), with 18 plant totalling 503 MW, approximately 15% of national installed wind capacity. The developer says it will install 300 MW during 2002, of which 150 MW is already underway. Project finance of EUR 723.7 million has been arranged, nearly half of which has already been assigned to projects with the remainder to be used over the next three years, says the company.

Gamesa is intending to pay for its purchase of the 49% in Gamesa Eólica bought from Vestas (40%) and the Navarra government's Sodena (9%) by selling off 140 MW of the wind plant it owns.

Some shadows

Not all the news is good, however. Gamesa Eólica has been rejected by developer Wind Ibérica as supplier of turbines totalling 100 MW for Spain's southern Tarifa area, despite Gamesa's claim earlier last year that it had clinched the deal. Unlike its main rivals, Gamesa has still not series-produced any megawatt scale machines. As a result, developers in neighbouring Portugal have turned to Vestas and other northern European manufacturers rather than cheaper Gamesa technology right on their doorstep.

Furthermore, Gamesa Energía's plan to put up 2720 turbines in Valencia region was turned down in November. Gamesa Eólica's main hope for supplying turbines to the region now rest with a 758 MW plan from Renomar, a joint venture between EHN and utility Iberdrola, the latter owning 50% of the Iberdrola and Banco Bilbao y Vizcaya corporation, better known as IBV, which controls 37.8% of the Gamesa group. Renomar is yet to confirm its supplier.

Heading abroad

Any obstacles at home, however, could be offset by Gamesa Energía's bullish behaviour abroad. Gamesa says it is working on plans for 450 MW in Australia (page 14) and is developing a total of 2600 MW in Italy alone. In Greece it has bid 800 MW of projects in joint ventures with Hellenic Energy and Development and in Portugal is rumoured to have clinched electricity grid rights for over 100 MW. France, Dominican Republic, Mexico and Brazil are all on its project development list too. In all the company plans to put up 877 MW in new installed capacity by 2004, including domestic developments.

Meanwhile, the market awaits Gamesa's readjusted profit forecast for 2002. Prior to segregation the group had set its combined wind and aerospace net profits forecast at EUR 77.5 million, a 25% increase on 2001. While Gamesa had forecast its renewables activities to account for 70% of business by the end of the year -- instead of the 100% they now represent -- it is not clear how much of this is attributable to the corporation's newly created PV solar division, Gamesa Solar.

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