MUNICH (dpa-AFX) – Wind turbine manufacturer Siemens Gamesa remains the problem child of power engineering group Siemens Energy . The Spanish-based subsidiary continues to struggle with supply chain problems, skyrocketing costs, project delays, and shortcomings in its new land turbine, forcing it to lower its outlook right at the start of the new fiscal year. Siemens Energy is therefore unable to meet its forecast and is even questioning its medium-term targets. What’s going on at the company, what analysts are saying and what the stock is doing.
SITUATION AT SIEMENS ENERGY:
It’s not the first time Siemens has let Gamesa down, dragging Siemens Energy down with it. Most recently, the wind turbine subsidiary significantly lowered its targets last summer – and the problems were almost the same. Energy CEO Christian Bruch had already taken a swipe at the management around Group CEO Andreas Nauen at that time and criticized, among other things, that the management was not getting to grips with the problems more quickly.
This reveals a weakness in Siemens Energy’s structure: The company is not able to exercise control over its Spanish subsidiary. Gamesa is itself independent and listed on the Madrid stock exchange – Energy holds a majority stake of 67 percent, but can only exert influence through the supervisory board. Since the creation of Siemens Energy, a spin-off of the energy business of the technology group Siemens, there has been speculation about a complete takeover of Gamesa.
So far, Bruch has repeatedly pointed out that this is not at the "top of the priority list" would stand. However, this could possibly change with the renewed profit warning. In any case, this gave new impetus to speculation. However, a takeover is likely to be expensive: If, despite a slide in the share price after the profit warning, the wind power subsidiary still has a total market capitalization of around 13 billion euros, and the free float is just over four billion euros.
Gamesa boss Nauen is also coming under increasing pressure. Just a year and a half ago, he took over from the hapless Markus Tacke, who was unable to get to grips with the problems despite a restructuring program and had to go. Although Nauen put together a new package of measures to get the wind turbine manufacturer back on its feet, he has so far had to continue almost seamlessly in the tradition of profit warnings issued by his predecessor. Although external factors are also weighing on the company – the problems in the supply chain as well as the higher costs are also affecting other wind turbine manufacturers – the internal problems are persisting. In addition to the technical shortcomings of the new onshore turbine, these include fixed contracts that are to Gamesa’s detriment.
All of this is also weighing on Siemens Energy: Due to the problems at Gamesa, the first-quarter figures (as of the end of December) were significantly worse than analysts had previously estimated. The Gas and Power energy technology business has performed "very solidly" developed, it was said by Energy. The division’s forecast for the current year has been confirmed.
However, Energy now only expects a comparable revenue development of minus two to plus three percent for the Group as a whole in 2021/22, instead of the previous range of minus one to plus three percent. Excluding currency effects as well as acquisitions and disposals. Adjusted Ebita margin is now expected to grow less significantly than planned. And the medium-term forecast for 2023 is also under scrutiny.
Siemens Energy will provide further details on 9. Publish February. Previously, Siemens Gamesa stated on 3. February, also on further measures to stabilize the onshore business and on the process for the new 5X onshore turbine.
WHAT ANALYSTS SAY:
Analysts are also starting to lose patience. For too long, the problems at the Gamesa subsidiary had overshadowed the strong progress in the rest of the energy technology group’s portfolio, criticized Deutsche Bank analyst Gael de-Bray, for example. He expects that "shortly some radical changes would be made to the Group’s structure to better bring out the value of the assets and solve the valuation problem.
Gamesa warning shows that positive turnaround in onshore wind business still lags behind expectations. By contrast, the power engineering group’s Gas and Power division is delivering on its promises, with continued strong commercial momentum and unexpectedly high margins and cash flows.
After three years in the red and three profit warnings in a row, the majority of investors in Gamesa had capitulated. However, the analyst still sees plenty of potential for value growth in the offshore and service segments. However, it will take time before confidence is restored.
The analyst firm Oddo BHF said that this profit warning from Gamesa is now one too many. Despite a strong performance from its Gas and Power division, the power engineering group has also been forced to cap its fiscal year targets following Gamesa’s profit warning, according to analyst Delphine Brault, who criticized what she sees as a lack of predictability in business performance.
The wind power sector is "not investable" at present, noted JPMorgan analyst Akash Gupta, citing the high cost and associated uncertainties of. After what is expected to be a third consecutive year of operating losses at Gamesa, the focus is also increasingly on the company’s balance sheet. His colleague Andreas Willi, referring to Siemens Energy, demanded that something must change at the power engineering manufacturer.
JPMorgan expert Willi left his rating for the Siemens Energy share at "Neutral" after the profit warning with a target price of 28 euros. The majority of experts are still optimistic about the share. Six of the eight experts surveyed by dpa-AFX who have commented since the profit warning continue to recommend buying the stock. Only one advises selling. The average price target is just under 28 euros, which is about 40 percent above the current level.
The fresh profit warning has not been kind to the share price, with Siemens Energy shares falling from more than 22 euros to a record low of less than 18 euros as a result of the bad news. Since the profit warning last summer, the share price had been rather lukewarm and had fluctuated between 21 and just over 25 euros.
The paper is thus a long way from the heights of 34 euros reached at the beginning of last year. And even since the recent recovery to 20 euros, the share price remains below the level of the stock market debut from September 2020 of around 22 euros.
The company currently has a market capitalization of almost 15 billion euros, which is slightly more than Siemens Gamesa. In the current year, this brings Energy’s share price down by around 12 percent; in the past twelve months, the stock has lost more than a third. As a result, the share was the second-weakest performer in the German benchmark index Dax , in which it has been listed for almost a year, after Delivery Hero during this period.
The securities of Gamesa, which is listed in Madrid, have also lost considerable value this year. After a rapid flight of the paper in the second half of 2020, the share has fallen again significantly. Since the record high of 39.35 euros at the beginning of 2021, it then went down by more than half.
Siemens still holds 35 percent of Siemens Energy shares after the spin-off. Other shares are held by the Siemens pension fund, which last year reduced its stake from just under 10 percent to less than 5 percent. Siemens had already announced its intention to further reduce its shareholding, but "not below book value", as Siemens boss Roland Busch emphasized in November. At the end of September, this stood at just under 6.4 billion euros – or around 25 euros per share./nas/jcf/zb
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