Energy Turnaround

Wind-Turbine Investors in the Doldrums

Green, mature and working for less money. Source: DPA

Germany’s generous subsidies for solar and wind energy helped create a viable green alternative to coal and nuclear. So much so, in fact, that last year, then-Economics Minister Sigmar Gabriel decided to revamp the country’s renewable energy law, the EEG, to treat wind and other green energy sources as “mature technologies.” While energy experts have applauded the move, you won’t find wind-turbine makers clapping their hands, with growing pressure on their profits and stock prices.

Because of the amendment, wind-turbine operators now earn eight euro cents per kilowatt of electricity they feed into the grid, down from nine cents, and that number is expected to drop to seven cents by the end of 2018. The one-cent decrease alone reduces annual revenue by up to €50,000 ($59,000) per wind turbine. That drop, coupled with the bidding auctions intended to support public wind energy companies, has significantly impacted suppliers’ bottom line.

The combined earnings before interest and taxes of the three largest publicly-traded wind-power companies in Germany, Nordex, Senvion and Siemens Gamesa, fell by almost 20 percent from €415 million to €333 million for the first six months of 2017, compared with the same period a year ago. Their lower earnings have also affected their stock prices.

Wind-turbine makers including Vestas could see their stock prices negatively impacted, should the European Central Bank decide to raise interest rates.

Nordex, for instance, has seen its stock drop from €32.75 to just under €11 since the beginning of 2016, and it could dip still further. Sven Diermeier, an analyst with Independent Research, warned about the fourth quarter “because of provisions for personnel reductions.” The company, which has yet to provide a sales forecast for 2018, plans to cut between 400 and 500 jobs. Last year, in a move to pad itself against the downturn in its home German market, Nordex acquired Spanish rival Acciona Windpower.

Siemens Gamesa’s stock price hasn’t performed much better. British investment bank HSBC recently lowered its target price from €15.50 to €13. Sean McLoughlin, an analyst with the bank, warned that turbulent years lie ahead for European wind-turbine manufacturers, adding that wind-power auctions will continue to depress prices and raise pressure on margins. Still, Mr. McLoughlin recommended that investors hold onto their stock.

At just under €12, Siemens Gamesa’s stock price is near its lowest level since the merger of Siemens Wind Power and the Spanish company Gamesa at the beginning of April. Since then, Siemens’ wind division has held a 59 percent stake in Gamesa. The group had unexpectedly reported weak quarterly figures at the end of July, causing the stock price to tumble. As with Nordex, job cuts are also expected at Siemens Gamesa, with 600 to 2,100 jobs on the line at the Danish site in Aalborg. The company employs 27,000 people worldwide.

But not all wind-turbine suppliers are suffering. Denmark’s Vestas stock has risen from €47.61 to €75.35 since December 2016. Analyst Akash Gupta of JP Morgan left Vestas stock at “over-weighted” with a price target of 700 Danish kroner – equivalent to €94.09. Mr. Gupta expects the wind turbine operator to remain highly profitable in the sector over the next few years. Mr. Diermeier of Independent Research agrees. “Vestas is simply larger, has a broader structure and has greater purchasing power,” he said, adding that the company began to restructure earlier than its competitors.

But Mr. Diermeier cautioned that all wind-turbine makers, including Vestas, could see their stock negatively impacted, should the European Central Bank decided to raise interest rates. “The stock value could decline because customers have to pay more for their financing,” Mr. Diermeier explained. “In an inflationary environment, equities could be the better asset class, because non-interest-bearing bonds and gold become less attractive.”

Leonard Kehnscherper writes about investments for Handelsblatt. John Blau adapted this story for Handelsblatt Global. To contact the author:

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