Falling turbine makers’ shares should not discourage investors


December 18, 2017

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Vestas is a good bellwether for what’s happening in wind. And so when, on 9 November, we saw its shares lose 21% of their value, we took notice. The drop to DKK421(€56) per share was Vestas’s biggest fall in six years.

This was a result of Vestas cutting its profit guidance by 1%, from the region of 12%-14% to 12%-13%, on the basis of a predicted fall in sales of equipment and services due to more competition. Its shares are still trading one-third lower than last May.

This prompted us to look more closely at the share prices of other turbine makers this year. By doing this, we can see that Vestas is not an isolated case.

Nordex’s share price has fallen by 60% in the last 12 months, from a high of €21.32 in January to €8.36 in December. India’s Suzlon has lost around 36% of its value since May, from INR21.25 (€0.28) to INR13.6 (€0.18) in December. And Senvion has lost 33% of its market value since June, from €15 to €10 in December.

In addition, Siemens Gamesa has seen its share price fall by more than 44% since April, which is likely to be the result of both market conditions and the huge merger that concluded in May; and General Electric’s shares have fallen 36% this year as well, although this refers to the full business and not only renewables.

Even so, share prices of wind turbine makers have dropped by around one-third on average this year. Why is this the case?

We believe these results are largely a result of falling prices for wind energy as more countries have adopted competitive tenders instead of feed-in tariffs. Firms now face tougher competition to win support for projects and this has brought the levelised cost of energy (LCOE) in winning bids to record lows.

This has increased pressure throughout the supply chain to keep prices down, especially for equipment manufacturers such as Vestas, Nordex or Suzlon. The effect has been most pronounced in Germany and India, and has forced investors to keep a closer eye on the financial performance of these companies.

Low LCOEs are also taking a toll on manufacturer strategies. To adjust to the market conditions, manufacturers are restructuring and in some cases cutting profit forecast and jobs. Investors have therefore become more sensitive to company announcements, and more of them have decided to sell their shares.

But we don’t think this means investors in the public markets are giving up on wind companies.

The wind sector has expanded rapidly in recent years and some of the investors it has attracted are those looking for a quick way to make money. Some of these are now jumping off the train, but this is not indicative of the wider health of the wind market.

This year, Goldman Sachs has predicted that €3trn will flow into renewables in the next six years, as they get cheaper than fossil fuels. The bank expects wind turbine makers to be the biggest beneficiaries of more spending on renewables, with annual average revenues in the sector growing about 17% a year from 2017 to 2036 and boosting annual net income by 58%.

We aren’t share-pickers – but Goldman suggests more reasons to be positive than the short-term falls would have us believe.

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