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At the conference call held this morning before the opening bell no further details were given although we would stress the following factors:
The reasons behind the higher losses on the operating level are the same as those seen at the end of the 2Q’20, which continue to show a worse performance than expected;
- Covid-19: The effects will continue to impact the 3Q’20 and in the long-term this will depend on the performance of the pandemic.
- Onshore projects in Northern Europe: Although at the 2Q’20 earnings release, the company suggested that the execution problems with these contracts would be largely over, they continued throughout the quarter, and in principle, they would not foresee a significant impact in 2021. Note that these projects already impacted the 1Q’20 (€ -150 M in EBIT) and the 2Q’20 (not quantified).
- India: Although the company already announced a restructuring of operations in this market (€-38 M in EBIT in 2Q’20), in the end, the restructuring will be deeper than initially planned, although no details have been given. However, the company clarifies that most of the cost overruns incurred will not mean cash outflows.
Impact on liquidity levels: The company mentions that working capital will stand at relatively normalised levels, although it does not rule out a negative impact from the drop in activity due to Covid-19. We estimate €-26 M of cash outflow in 2020, although we could see some deterioration from these levels. In this regard, we recall that as of the end of 2Q, NFD stood at € 295 M, including €~2.9 Bn of unused loan facilities (vs. debt maturities totalling €~850 M in 2020-21 as of YE2019).
Offshore: The company underscores that this business continues to perform well, with the focus now shifting towards the onshore business.
Mexico: It mentions that currently it has a few projects here that might be affected by the measures recently announced by the Mexican Government (in favour of traditional energies vs. clean energies), although it will provide further details on the possible impact on its operations in its 3Q’20 results presentation, to be held in late July (expected for 30 Jul).
Separately, the company has announced the resignation by mutual agreement of its current CEO (Markus Tacke) and the appointment of Andreas Nauen (current head of the offshore business) as the company’s new CEO. We understand that the forecast of poor 2020 results may have hastened the exit of the current CEO.
Likewise, SGRE has announced its CMD will be held on 27 August, when it expects to provide more details on the company’s expected strategy and performance in the medium and long term.
In short, as regards the negative adjusted EBIT’20 forecast, both we and the consensus expected it to be in positive territory by year end, and thus this would be bad news. In this regard, if we assume zero adjusted EBIT’20 (keeping the rest of our future estimates unchanged, with € 705 M of EBIT’21e (€ 679 M consensus) and without changing working capital), the impact on our T.P. would be -3%, which would leave negative potential of -10% for the current share price (which is falling -8%). For the time being, and in the absence of any additional information the company could provide during the 3Q’20 results presentation and in the CMD, we maintain our SELL recommendation.
As for the naming of a new CEO, we welcome the appointment of someone that was already working in the company for a long time as the head of the offshore business, a division that to date has performed well.
SIEMENS GAMESA: PREDICTS NEGATIVE ADJUSTED EBIT’20 AND APPOINTS NEW CEO (ANÃLISIS BANCO SABADELL)
The company’s management team announced at yesterday’s closing bell that due to project costs and the financial impact associated with Covid-19, the 3Q’20 will show negative adjusted (pre PPA and restructuring costs) EBIT in the 3Q’20(€ -103 M as of 1H’20) and that the predictable positive EBIT in the 4Q’20 will not be sufficient to offset the negative EBIT accumulated through the 9M’20 (vs. € 332 M BS(e) in 2020 and € 335 M consensus).At the conference call held this morning before the opening bell no further details were given although we would stress the following factors:
The reasons behind the higher losses on the operating level are the same as those seen at the end of the 2Q’20, which continue to show a worse performance than expected;
- Covid-19: The effects will continue to impact the 3Q’20 and in the long-term this will depend on the performance of the pandemic.
- Onshore projects in Northern Europe: Although at the 2Q’20 earnings release, the company suggested that the execution problems with these contracts would be largely over, they continued throughout the quarter, and in principle, they would not foresee a significant impact in 2021. Note that these projects already impacted the 1Q’20 (€ -150 M in EBIT) and the 2Q’20 (not quantified).
- India: Although the company already announced a restructuring of operations in this market (€-38 M in EBIT in 2Q’20), in the end, the restructuring will be deeper than initially planned, although no details have been given. However, the company clarifies that most of the cost overruns incurred will not mean cash outflows.
Impact on liquidity levels: The company mentions that working capital will stand at relatively normalised levels, although it does not rule out a negative impact from the drop in activity due to Covid-19. We estimate €-26 M of cash outflow in 2020, although we could see some deterioration from these levels. In this regard, we recall that as of the end of 2Q, NFD stood at € 295 M, including €~2.9 Bn of unused loan facilities (vs. debt maturities totalling €~850 M in 2020-21 as of YE2019).
Offshore: The company underscores that this business continues to perform well, with the focus now shifting towards the onshore business.
Mexico: It mentions that currently it has a few projects here that might be affected by the measures recently announced by the Mexican Government (in favour of traditional energies vs. clean energies), although it will provide further details on the possible impact on its operations in its 3Q’20 results presentation, to be held in late July (expected for 30 Jul).
Separately, the company has announced the resignation by mutual agreement of its current CEO (Markus Tacke) and the appointment of Andreas Nauen (current head of the offshore business) as the company’s new CEO. We understand that the forecast of poor 2020 results may have hastened the exit of the current CEO.
Likewise, SGRE has announced its CMD will be held on 27 August, when it expects to provide more details on the company’s expected strategy and performance in the medium and long term.
In short, as regards the negative adjusted EBIT’20 forecast, both we and the consensus expected it to be in positive territory by year end, and thus this would be bad news. In this regard, if we assume zero adjusted EBIT’20 (keeping the rest of our future estimates unchanged, with € 705 M of EBIT’21e (€ 679 M consensus) and without changing working capital), the impact on our T.P. would be -3%, which would leave negative potential of -10% for the current share price (which is falling -8%). For the time being, and in the absence of any additional information the company could provide during the 3Q’20 results presentation and in the CMD, we maintain our SELL recommendation.
As for the naming of a new CEO, we welcome the appointment of someone that was already working in the company for a long time as the head of the offshore business, a division that to date has performed well.
Underlying
SIEMENS GAMESA (SGRE SM)
Provider
Sabadell
Alfredo del Cerro
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