Morningstar | Vestas' Full-Year Results Lower Than Expected; Maintaining FVE
No-moat Danish wind turbine manufacturer Vestas reported full-year results on Feb. 7 that were below consensus and our expectations. Sales of EUR 10.1 billion, a 2% year-over-year increase, came in slightly below our EUR 10.3 billion and 3% growth forecast. The high-margin service segment delivered 10% growth, but the largest segment, power solutions, came in flat because of lower pricing. Reported EBIT margin at 9.5% was 100 basis points below our estimate, mainly as a result of lower gross margin. We are maintaining our DKK 570 fair value estimate and no-moat rating.Gross margin declined to 16%, down from last year due to competitive pressures, a sign that the firm has to offer lower binding prices to developers in order to be selected as a project supplier. Along with increased competition, products ramp-up costs also had a negative impact on 2018 gross margin. With major markets introducing competitive auction mechanisms for renewable energy in recent years, wind farm developers have to drive down the levelised cost of energy, and as a result, turbine suppliers are squeezed. The lack of turbine suppliers' pricing power is one of the reasons we do not award Vestas a moat.
On a positive note, the management announced the fifth quarter of stable average selling price for order intake, expressed per megawatt-hour, a sign that negative surprises may be less likely. Order intake, at 14.2 gigawatts, had strong growth of 27% above 2017's level, with all the main regions contributing.
Vestas Wind Systems is an industrial machinery and equipment manufacturing company based in Denmark. Co. is engaged in the production of wind turbines. Co.'s main activities comprise development, manufacture, sale, marketing and maintenance of installations that use wind energy to generate electricity. Co. supplies products, from individual turbines to the delivery of turnkey wind power installations globally. Co. supplies guidance services to its customers in connection with the development, financing and ownership of wind turbine projects. Co.'s main customers are utilities and energy companies.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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