Morningstar | Siemens Gamesa Reports Good 1H Results Despite Weakness in Pricing; FVE Maintained
No-moat Siemens Gamesa reported 7% revenue growth in the second quarter thanks to strength in offshore and services. The onshore division was a drag on the top line and group profitability. Unsurprisingly, the main culprit was pricing, negatively affected by project and regional mix. The price decline was partially offset by volume, productivity improvements, and cost savings thanks to the firm's cost-cutting program. These dynamics are in line with our expectations for high-volume activity and pricing headwinds for the wind turbine market. We maintain our EUR 16.80 fair value estimate and believe the shares offer modest upside.EBIT margin before purchase price allocation, integration, and restructuring costs was 6.8% in the first half, down 60 basis points from the year-ago first half. However, we believe the firm is on track to achieve the midrange of management's full-year EBIT margin target of 7%-8.5% on the back of lower negative pricing effects, higher offshore and onshore activity, and ongoing realised cost savings in the second part of the year.
Through the first two quarters of fiscal 2019, we see a few positive highlights. First, second-quarter average selling price, controlled for geographic mix and scope effect, was EUR 0.72m/MW, confirming a stable price trend. ASP development remains a main industry concern as many markets have switched to auctions. The Chinese market was a main contributor to the negative pricing dynamics in the quarter. Second, Siemens Gamesa is the first wind turbine manufacturer to attain an investment-grade rating. The positive outlook BBB- (S&P) and stable outlook BAA3 (Moody's) ratings should lead to more diverse funding sources for Siemens Gamesa and position the firm to drive the market consolidation. Third, the firm introduced a new onshore platform, which promises 20%-32% higher annual energy production than its predecessor. Turbines with higher production levels are a key driver for equipment replacements.
Siemens Gamesa Renewable Energy is a holding company. Through its subsidiaries, Co. is engaged in the business of renewable energy sources, primarily wind power but also including solar energy where its acts as a supplier and manufacturer of technological products, installations and services. Co. is organized along the lines of: promotion, construction and sale of wind farms, engineering, design, manufacture and sale of wind turbines, manufacture of thermic and photovoltaic solar components, promotion and sale of photovoltaic solar farms. Co. also participates in both Spanish and European working groups aimed at establishing priorities for its sector's research & development work.
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