Stock price performance from the Windicator

Investors had far bigger issues than the wind sector to contend with during the last quarter, with the health of financial markets and the world economy a major preoccupation. In the energy sector, however, high oil and energy prices have been helpful in focusing the mind on alternatives. Analysts seem to understand that the key drivers for wind's ongoing and powerful growth surge are largely uncorrelated to the broader (industrial) economy, though perhaps they are not yet articulating it as strongly as they might, particularly in relation to the contrast between wind and the rest of the stock market. The macro view of the wind turbine manufacturers continues to be positive, if anything suggesting an extension of the period of turbine demand outstripping supply. High steel prices are presumed to be passed through to customers, with profitability margins largely unaffected, providing yet another aspect to the argument that turbine manufacturing is a particularly well positioned sector at the moment.

For the majority of the companies, the past quarter was characterised by the run up to their announcement of results for 2007, which inherently is a time of taking stock as well as looking forward. It is a time of key news flow, with often strong reactions from investors to the outcomes, to whether management's guidance has been reached, exceeded or otherwise, and why. In terms of share price performance, Windpower Monthly's index of listed European wind turbine manufacturers (top right) posted a suitably resilient result, down only 2.0% for the quarter through March 7, 2008, compared with a 16.5% drop in the broader European index.

Vestas ended the period up 7.2%, although it was quite a choppy ride for investors. The company announced a flurry of new orders around year end, followed by positive news on Dutch court rulings on patents. Its shares reached a high at the end of December, before tumbling sharply during January, compounded by the broader market movements. In early February, Vestas shares jumped on a revision to the 2007 expected result. Unlike the Vestas of old, this was an upward rather than downward revision. But its shares fell later in the month with publication of its results, with the market appearing to react badly to news that Vestas' market share is estimated to have declined from 28% to 23%. There is a legitimate debate to be had about whether this really matters, especially for a company that has in recent years gone to lengths to say that profitability is more important than the size of its market share. Vestas treated the news of its dwindling slice of the pie prominently in the company's announcement of its annual results, suggesting it does matter to the company, and was quick to add in its outlook for 2008 that it anticipates reaching a 25% market share. The fall in share price could partially be put down to Vestas letting the good news out of the bag earlier in the month.

In the context of the European stock markets' fall in value, Gamesa posted a solid performance. Its shares were down just 5.7% for the period, considerably less than the broader market. Gamesa's 2007 results announced during the quarter were well received and it confirmed its guidance for 2008, suggesting confidence in core business performance. Continuing a longer term initiative to refocus the business through the sale of non-core assets, Gamesa also announced the sale of its solar business to private equity firm First Reserve.

Nordex's shares fell the most of its European listed peers, down 28.1% for the period. In early February it announced that it had likely missed its earlier forecasted sales target for 2007. Speculation that this might happen emerged during December and perhaps was a contributing factor to the slide in price. Nonetheless, Nordex's preliminary results appeared to present an otherwise compelling picture, with 2007 order receipts up by 60%, profit more than doubling and management projecting that top-line revenue growth ought to grow at an average of 50% per annum in the medium term.

Clipper's shares were down 17.1% for the period, during which it issued two trading updates, ahead of the announcement of preliminary results in late March. Clipper's first trading update included news of the implementation of a rotor blade reinforcement program, alongside its previously announced drivetrain remediation program. Clipper also announced that revenue recognition for certain of its projects would slip into the 2008 fiscal year. In its second update, during late January, Clipper stated that its 2007 turbine production level was within the management guidance and that the previously announced programs were progressing and that these "teething" issues were under control. The company announced positive news on the order front, with cumulative third party firm orders increasing to over 2000 MW. From a financial perspective, 2008 was positioned as a "transition year" and Clipper said its CAPGEN fundraising initiative was progressing.

In India the news was not as encouraging. Suzlon was down 34.2% versus an 18.5% fall in the index, bringing it back to its share price level at the end of last summer. Suzlon raised about $500 million of new equity in mid-December to help refinance part of the Repower acquisition, seeming to execute it at only a smaller discount to the share price. Analysts felt that Suzlon's quarterly results, announced at the end of January, were disappointing. This sentiment continued at the end of the period with Suzlon announcing a retrofit program covering 417 sets of blades for its 2.1 MW turbines. On balance, and notwithstanding the announcement of new orders, the news flow from Suzlon appeared more weighted downwards in a quarter featuring broader market volatility and nervousness.

Like Vestas, Repower bucked the downward trend during the quarter, posting a 13.7% increase. The company announced a strong 2007 fiscal year, based on preliminary results, with revenues up close to 50%. Perhaps equally importantly, the company reached its goals for the year. A 1300 MW order backlog appears encouraging -- and management raised its guidance for the coming year. Repower also announced that its shares would now be included in the German technology index, TecDax, which could be helpful for index investors.

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