Stock price performance from the Windicator

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Anyone wishing to live in interesting times should have been a wind power investor in the last quarter. On the one hand the period featured all the usual ingredients: quarterly company reports ranging from the disappointing to the pleasantly surprising, a pinch of ongoing merger and acquisition (M&A) activity, a near constant chorus of complaints about supply chain bottlenecks and a sprinkle of regulatory momentum. On the other hand, it also featured some more dramatic elements -- a correction of stock market prices across the world and the roller coaster ride of high growth stocks in the midst of deal-making and forecast-breaking.

In terms of pure performance, the WPM Equity Index of European-listed wind stocks was up 0.9% for the June to September period, outperforming the FTSE Eurotop, which fell by 4.5% (chart bottom right). The aggregate picture, however, is not an adequate portrayal of the wind sector in detail. Of the five publicly traded wind turbine manufacturers, it was the smallest that stole the spotlight. Clipper shares, after a somewhat bumpy but skyward ascent in recent months, fell hard, down 41.5% (chart above). Two announcements of components problems in short succession, each interpreted as reducing 2007 production levels, took their toll. But the fall in share price should be put in context. While a 40% drop is significant, it more or less brings the shares back to their price level at the end of last year after a period of very strong performance. For an investor who bought Clipper at its IPO and through mid 2005, the last quarter would have been unfortunate, but the gain was still meaningful. Some analysts adopted this view, in effect saying they were comfortable with the stock and valuation. Fortunately for Clipper, it was able to announce a high profile -- and seemingly well received -- corporate transaction in the midst of its production news flow downdraft: an alliance of its project development division with Spanish construction and real estate company Hemeretik (page 42). In addition to adding megawatts and geographic diversity to the Clipper project pipeline, the quality of the Hemeretik wind team was viewed as a positive side of the transaction for Clipper. A stronger project division should be able to grow the project pipeline for Clipper turbines. If the alliance allows Clipper to raise finance for its development business, it would potentially reduce Clipper's capital commitment, another potentially positive aspect.


While Clipper shot into a dip on the wind roller coaster, Vestas arguably reached a zenith. Though its shares underperformed its peers and the broader index with a 4.5% decline, it posted strong quarterly results. While it, too, had its share of component delays and supplier issues, which dampened profitability, Vestas' results were almost universally well received, leaving analysts bullish and pleasantly surprised. It now seems accepted wisdom that the company's turnaround has happened -- and faster than expected. Market sentiment is that Vestas has at last got its act together and is increasingly well positioned to grow its business and market share. Talk has it that Vestas is perhaps investing more aggressively than its peers in new product development and quality improvement. Whatever the case, these are good times for the company, which has regained its place as the largest in the sector by market capitalisation (chart next page).

For better or worse, Vestas has traditionally been seen as a bellwether stock for the sector. Its shares fell sharply in mid-August, but through no fault of its own. Broadly speaking the dip was the start of the market-wide correction resulting from the sub-prime mortgage losses in the US and ensuing concern about the availability of finance in the market. At first glance this would seem to have little to do with Vestas and its peers. Vestas is not a company dependent on extraordinary levels of debt, nor is it involved in US mortgage lending. Indeed, within a few trading sessions, Vestas shrugged off the loss and was back at its previous level. The market disruption could still have a long term effect in the wind sector, however. The financial markets and their participants are all interconnected. If investors have to sell their shares in one sector to cover losses elsewhere, prices will fall, as they will if investors become shell-shocked or overly cautious after being caught out by the first market disruption of their previously stellar though short careers. It remains to be seen how this will play out against the underlying business story for wind, which remains strong. Interesting times indeed.

Nordex, Repower, Gamesa, suzlon

While stock prices for the rest of the companies also fell in mid-August, Nordex ended up the star performer for the quarter with a 24.1% gain. That was fuelled by strong financial results and underlined its expansion plans. While positive sentiment was in the air in relation to wind regulation in Germany, the timing of this against Nordex's first half year results, which show more than 90% of its new orders come from outside Germany, highlights how far the company has come. Nordex continues to benefit from ongoing market expectation in relation to a possible merger or acquisition for the mid-size company. Repower, whose shares have been dominated of late by the M&A activity surrounding Suzlon's manoeuvre to seize control of the company, was down 21.7% for the period. Over the entire first half of the year, Repower's results are also down, with supplier delays hurting sales, though fundamentally demand outlook had improved. Gamesa was up 4.1% for the period, with results not flattered by corporate activity of a year ago. Like Repower, Gamesa's shareholding position became even more secured during the period as Iberdrola acquired another 1% of the company.

Repower's new owner, Suzlon, underperformed the Indian market, posting a 6.9% decline against the broader market's 6.1% increase (chart page 75). "Disappointing" was again the common word in the analyst lexicon for Suzlon. Its shares fell sharply following release of its quarterly results, which were around 50% below some analyst estimates. Expressions of disappointment aside, Suzlon wins recognition for the impressive job it has done in positioning for future growth and mitigating some of the supply chain issues facing others. So while appreciation of the rupee and higher costs for new employees relating to the ramp up of its business might hurt the current quarter's earnings, the question investors have to ask themselves is whether they care more about that or more about where the company is heading. Suzlon has stated that it expects to be the third largest wind power company in the world by 2010. Its growth, assuming it is profitable, should be the key priority for the company and investors alike. Last year it lay in fifth place behind Vestas, Gamesa, GE Energy and Enercon, in that order. To secure third place it will also be competing with Siemens.

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