Stock price performance from the Windicator

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Wind stock prices continued to surge over the last quarter, with the Windpower Monthly composite index of European listed companies up 24.3% against a general European market increase of 8.5%. In India, Suzlon posted a 29.2% gain, outpacing the 11.4% gain by the general market. With share prices rising for all of the listed wind companies, more than EUR 7 billion was added to their aggregate market capitalisation, an increase of more than 33%, significant by any measure.

Particularly strong share price performances came from Vestas, up 43.5%, and Clipper, up 52.1%. Gamesa increased 23.3% while Nordex was up 14.7%. Somewhat ironically, Repower was the poorest performer. While arguably the battle over ownership of Repower was the catalyst for much of the recent wind sector share price momentum, Repower prices rose just 1.1% over the quarter, though they were already high, having jumped as the takeover tussle progressed.

Suzlon emerged the victor over Areva in late May, with control of around 87% of Repower's votes and the chair of the company's supervisory board. It is heading the company without full ownership, but with a reasonably significant public shareholding in Repower and a voting arrangement in place with fellow shareholders, Martifer and Areva. So Suzlon has control while reducing its immediate funding requirement, note analysts. While at face value, it is a clever structural aspect of the deal, it brings a number of inherent complications with it.

Making mergers work is never easy, even with geographic proximity, familiarity with one another, and common shareholders. Suzlon and Repower have none of these. Realising significant synergies from the combined companies is a key objective, says Suzlon, as it clearly should be. But achieving the objective with two separate companies is more challenging than with one. Suzlon now has a major execution task ahead of it and two sets of shareholders to keep happy. When all is said and done, however, the outcome of the Repower battle is far better than what might have happened -- a stalemate with no one in control.

With the deal agreed, Repower's share price soon dropped below the offer price, as to be expected. Its future share performance needs to be viewed in the context of a major controlling shareholder and limited free float. Nonetheless, share price movement will provide some insight into investor perception of the takeover, as well as Repower's underlying performance. Despite being preoccupied with the takeover details, investors may have been reminded of the importance of the basic health of the company when Repower reported its first quarter results, posting a steep decline in net income due to component supply delays.

Vestas and Gamesa

With Suzlon busy trying to acquire Repower, Vestas regained its status as the largest company by market capitalisation and delivered strong share price performance. It kicked off the quarter with full year results in line with earlier forecasts that were perceived to be consistent with the intended outcome. For some market analysts, the continuing increase in Vestas' share price is partially due to the company having established that its NEG Micon merger integration plan and "Will to Win" strategy is working, with any lingering doubts the company can deliver on its plans eradicated. Investors can focus on the growth story, as well as the prospect of Vestas potentially becoming a takeover target in the future. Announcements of new contracts, including in the US, helped further fuel the growth sentiment. Slightly disappointing first quarter results did not prompt analysts to again change their expectations.

Gamesa also had a strong quarter overall, despite its first quarter net results falling. An important driver for the share price was the final resolution of the Spanish renewable energy tariff, which both reduced ongoing uncertainty as well as produced a result deemed reasonable by industry participants. Gamesa has been a continuing beneficiary of the wind sector's merger and acquisition (M&A) activity, though the significant presence of Iberdrola on its owner register clearly influences the nature of any takeover attempt. For its part, Iberdrola announced it was planning to list 20% of its renewable energy subsidiary in the last quarter of the year. While this will increase the universe of listed wind companies, particularly ones with significant size and geographic diversity, it ought not to change anything with regard to Gamesa.

Clipper and Norde

xClipper continued its near meteoric share price growth, up more than 50% for the last quarter, apparently on the back of positive news announcements, including the commissioning of its first 2.5 MW Liberty turbines. Possibly most influential was its "one year later" report on its commercial sales effort, which resulted in 5600 MW of firm and contingent orders for 2007-2011 already in the bag. This was enough to substantiate the growth potential convictions of some market analysts, who responded with 'Buy' recommendations. Others took a different view, particularly once Clipper's share price had risen further later in the quarter. For these, the need to deliver against these orders in a timely fashion is critical.

Nordex also had its share of positive news to impart, including its largest master turbine sales agreement to date, orders in Turkey, Italy, and Sweden, and plans to expand its Rostock production facility. Furthermore, perhaps intent on benefiting from the current M&A upswing in the sector, the company's principal shareholders are investigating a possible sale of their shares in the company. In addition to the potential implications for Nordex, this may provide further momentum to the overall M&A premium and activity in the sector.

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