Company Reports

No-moat Vestas surprised investors by reporting an operating loss of EUR 68 million during its first quarter, reinforcing our view of the difficulties of investing in the sector. Its operating loss reverses a trend of two consecutive quarters of operating profits, a reminder that challenges faced by industry participants in the wind sector persist, despite positive news during second-half 2023. Management kept their full-year EBIT margin guidance unchanged at between 4% and 6%, implying seasonal volatility was the main reason for the loss rather than structural problems. However, the average selling price for its wind turbines appears to have peaked in fiscal 2023 and therefore its medium-term EBIT margin target of 10% may be ambitious given the competitive nature of turbine manufacturers. Shares are trading 5% lower and are at a slight discount to our DKK 197 fair value estimate, but we suggest investors wait for a greater margin of safety.

Vestas delivered a blockbuster fourth-quarter 2023, which included a record order intake and strong sequential improvement in its profitability, sending shares 6% higher. The impact of higher selling prices for its wind turbines has seen the group return to profitability during the last two quarters, leading to full-year operating profit of EUR 231 million (a 1.5% EBIT margin) compared with a EUR 1.2 billion loss in the previous year. Guidance of revenue between EUR 16 billion and 18 billion at a 5% EBIT margin at the midpoint, falls broadly in line with our expectations and is a clear indication that Vestas’ positive momentum will continue into fiscal 2024. We maintain our DKK 197 fair value estimate and view shares as fairly valued.

The U.N. Climate Change Conference, otherwise known as COP28, has reiterated the secular growth theme underpinning our recently upgraded forecasts for the capital goods manufacturers. Combating climate change requires upgrading electricity grids to accommodate renewable energy and greater adoption of energy-management solutions for energy-intensive infrastructure, such as buildings and data centers. Wide-moat Schneider Electric is best positioned, in our view, and is trading at a slight discount to our recently revised EUR 174 fair value estimate.

No-moat Vestas’s third-quarter results comfortably beat company-compiled consensus after it benefited from the delivery of higher-priced turbines, which resulted in the group returning to profitability for the first time in 2023. Third-quarter operating profit of EUR 70 million was considerably higher than consensus estimates of EUR 31 million and a considerable improvement from its EUR 127 million loss in 2022. The group is on track to return to profitability for the full year after it raised operating profit margin guidance to between 0% and 2% for the full year, from negative 3%-positive 2%. Shares are up 8%, but remain slightly undervalued compared with our DKK 197 fair value estimate, which we maintain.

Vestas will be a beneficiary of the transition to wind energy as all their profits are derived from the sale and servicing of wind turbines. Wind energy is the optimal energy source to transition to thanks to its environmental, financial and ability to provide energy independence. However, several challenges are impeding its adoption of renewable energy adoption, which includes higher interest rates and cost inflation. Vestas enjoys a leading position in the onshore wind turbine market and is improving its competitiveness in faster-growing offshore wind.

No-moat Vestas delivered solid second-quarter results, reiterating our view that operational issues at Siemens Energy are idiosyncratic and will unlikely detract from Vestas’ financial performance. Its second-quarter operating loss of EUR 70 million was broadly in line with the company-compiled consensus for a loss of EUR 62 million, which is trending in the right direction (if we exclude nonrecurring income) as lower-margin orders from the backlog are executed. The average price of second-quarter orders increased sequentially to EUR 1.04 million per megawatt from EUR 890,000 per megawatt, and thus we wouldn’t be surprised if Vestas is able to report a quarterly profit by the end of the year, provided commodity prices remain stable. Management confirmed its full-year EBIT margin guidance of between negative 2% and 3%. Shares are marginally undervalued from our DKK 197 fair value estimate, which we maintain.

We believe the poor performance reported by Siemens Energy at its subsidiary Siemens Gamesa is largely restricted to the latter business and should not have a material impact on Vestas’ financial performance. Siemens Energy reported an operating loss of EUR 374 million at its subsidiary Siemens Gamesa during the second quarter and guided toward a full-year operating margin of negative 11% for the division. Siemens Energy’s share price fell by more than 35% on June 23, which spooked investors in wind turbine manufacturers and dragged Vestas’ share price lower by more than 5%. The poor outlook at Siemens Gamesa incorporates additional costs due to flaws in its onshore wind turbines, which may exceed EUR 1 billion, but we believe it shouldn't have an impact on Vestas. We reiterate our fair value estimate of EUR 197 for Vestas and view its shares as fairly valued.

Vestas will be a beneficiary of the transition to wind energy as all their profits are derived from the sale and servicing of wind turbines. Wind energy is the optimal energy source to transition to thanks to its environmental, financial and ability to provide energy independence. Vestas enjoys a leading position in the onshore wind turbine market and is improving its competitiveness in faster-growing offshore wind.

No-moat Vestas reported EBIT of EUR 40 million during the first quarter, its first profitable quarter since fourth-quarter 2021. While the EUR 147 million sale of its converter business positively distorted results, underlying performance also appears to be improving as higher pricing and lower provisions will support an improvement in its profitability from the lows of 2022. We raise our fair value estimate to DKK 197 per share as its short-term profitability outlook has improved, driven by the factors above. Despite an improved outlook, our preferred way for investors to get exposure to the wind energy theme remains wind energy utilities and producers of wind energy. We view shares as fairly valued.

Vestas will be a beneficiary of the transition to wind energy as all their profits are derived from the sale and servicing of wind turbines. Wind energy is the optimal energy source to transition to thanks to its environmental, financial and ability to provide energy independence. Vestas enjoys a leading position in the onshore wind turbine market and is improving its competitiveness in faster-growing offshore wind.

No-moat Vestas’ full-year 2022 results provided little new information after it revealed preliminary results two weeks ago. An operating loss of EUR 1.8 billion epitomizes the challenges the group faced, which included a combination of macroeconomic and internal factors, leading to higher warranty expenses and impairments. EBIT margin guidance for 2023 between negative 2% and 3% implies that the equipment business will remain in the red for most of 2023, but should benefit as the year progresses from price increases of 34% on new turbine orders. While we plan to revise our short-term forecasts, we don’t anticipate a meaningful change to our DKK 176 fair value estimate. Our preferred way for investors to get exposure to the wind energy theme remains wind energy utilities and producers of wind energy.

No-moat Vestas’ struggles this year continued in the third quarter, reiterating why our preferred way to play the transition to wind energy is through utilities and producers of wind energy. Vestas reported an operating loss of EUR 127 million in the third quarter, its third consecutive quarterly operating loss, driven by cost inflation on the group’s existing order backlog and project delays. One positive this quarter was the 32% increase in the average selling price of its wind turbines, which will help combat inflationary pressures and combined with lower commodity prices, will support a return to profitability. Management lowered its full-year guidance for the second time this year; however, it will not impact our DKK 176 fair value estimate. We view shares as fairly valued

Vestas will be a beneficiary of the transition to wind energy as all their profits are derived from the sale and servicing of wind turbines. Wind is the optimal energy source to transition to due to its environmental and recently, financial appeal. Wind will also play a key role in securing a country's energy independence. Vestas enjoys a leading position in the onshore wind turbine market and is improving its competitiveness in faster-growing offshore wind.

No-moat Vestas kept its full-year guidance unchanged, despite another quarter of operating losses that could be the first indication that a return to group profitability is on the horizon, and this has sparked a positive reaction from the market. While the second quarter fell short of company-compiled consensus, revenue declines of 6.5% and a contraction in profit margins in the service business were primarily driven by one-off impacts on specific projects. To combat significant raw material inflation, Vestas has raised the average selling price on its onshore turbines by 22% year over year, the highest price charged in the past decade, which will help turn around the group’s profitability as its turbine backlog of EUR 18.9 billion is delivered in the upcoming years. First-half operating losses of EUR 511 million implies a slight return to profitability in the second half of the year if we apply management’s midpoint EBIT margin guidance of negative 2.5%, with the increase in selling prices likely to have a positive impact in future years. While we plan to slightly revise our short-term forecasts, we reiterate our DKK 176 fair value estimate.

Vestas Wind Systems has successfully maintained a leading position in the onshore wind turbine market. More importantly, Vestas has been more selective of projects, which do not meet its profitability hurdle, and this has ensured industry-leading profitability and better management of higher raw material prices than competitors. We believe Vestas is well placed to benefit from the structural trend toward decarbonization despite an uncertain short-term regulatory environment and record high raw material costs

Shares of no-moat Vestas are up 16% on the news of a possible bill that would result in $369 billion being invested into energy security and climate change. Wind turbine manufacturers stand to be beneficiaries through greater demand for their equipment, which has seen volatile demand in recent quarters. Uncertainty surrounding the extension of production tax credits of wind projects in the U.S., Vestas’s largest geographic market, has led to the deferral of wind energy projects and was a key reason behind the group’s decline in orders in 2021. However, even with regulatory clarity and new investment, we remain concerned about the weak industry economics among the wind turbine manufacturers that have led Vestas, Siemens Gamesa, and General Electric Renewable Energy to all guide toward making operating losses in 2022. Our no-moat rating for the wind turbine manufacturers is underpinned by intense rivalry among competitors and product innovations that are not groundbreaking enough to avoid replication, which have led to aggressive pricing competition as manufacturers jostle to gain market share in the hope of achieving perceived scale benefits and long-term service contracts in the future. We maintain Vestas’ DKK 176 fair value estimate. Shares in Siemens Gamesa are unchanged due to its impeding takeover by Siemens Energy.

No-moat Vestas reported a disappointing EUR 894 million operating loss and cut full-year guidance due to a combination of ongoing supply chain constraints, which are hitting the industry, and once-off write-downs. Vestas has increased prices on its new order intake but the existing backlog has remained susceptible to raw material and energy inflation. Company-specific write-downs related to legacy offshore activities and plans to adjust its manufacturing footprint as part of the decision to withdraw from Russia also weighed on weaker results. Despite lowering guidance, operational performance at Vestas is expected to outperform Siemens Gamesa and thus it remains our preferred pick. Having adjusted our 2022 estimates to reflect slightly lower revenue and weaker profitability, we maintain our DKK 176 fair value estimate. Vestas’ investment case is based on the structural shift toward wind energy in the long term, which is where most of the intrinsic value lies and thus a weaker 2022 does not have a material impact on our fair value estimate. Vestas’ order backlog remains healthy at EUR 48.9 billion, approximately three years of revenue. Shares are fairly valued.

Vestas Wind Systems has successfully maintained a leading position in the onshore wind turbine market. More importantly, Vestas has been more selective of projects, which do not meet its profitability hurdle, and this has ensured industry-leading profitability and better management of higher raw material prices than competitors. We believe Vestas is well placed to benefit from the structural trend toward decarbonization despite an uncertain short-term regulatory environment and record high raw material costs

Vestas Wind Systems has successfully sustained a leading position in the onshore wind turbine market. More importantly, Vestas has been more selective of projects, which do not meet its profitability hurdle, and this has ensured industry-leading profitability and better management of higher raw material prices than competitors. We believe Vestas is well placed to benefit from the structural trend toward decarbonization despite an uncertain short-term regulatory environment and record high raw material costs

No-moat Vestas closed out a challenging 2021 financial year with full-year order intake and operating profit both declining 9% and 39%, respectively. Vestas reported operating profit of EUR 461 million at a 3% EBIT margin, outperforming peers that reported operating losses during the year. We attribute Vestas’ superior profitability to better management of commodity inflation supported by a 12% average selling price increase implemented on turbines and a greater focus on profitable orders rather than market share gains. Superior operating performance and guidance for the current year reiterates Vestas as our preferred pick over Siemens Gamesa. We don’t anticipate revising our EUR 176 fair value estimate as we update our forecasts and view shares as fairly valued.