We believe sentiment for original
equipment manufacturers (OEMs) of
renewables has troughed
儰 But expect price volatility to remain
high given low earnings and cash flow
visibility. Investors should be selective.
儰 In solar, rising volume and China
exposure lead us to select SMA Solar
and GCL-Poly as key OWs. Recovery in
in wind OEMs will take longer
Repricing to higher growth expectations. Policy support in
the top two solar and wind markets, US and China, in early
January fuelled a sector rally. We believe higher end-market
growth expectations in 2013 and 2014 combined with rising
risk appetite among investors should result in stocks
stabilising at current levels, with selective upside.
Longer-term potential for solar. Despite the pace of volume
growth slowing in 2013, the shift away from return-driven and
subsidy dependent European markets towards emerging
markets should refocus investor attention to solarˇs longerterm
potential. With supply stresses easing and pricing
beginning to stabilise, we see better value upstream. However,
the Chinese tariff ruling on polysilicon (possible date 20
February) is already influencing the supply/demand balance
and could pose a risk for Western suppliers.
Improving wind recovery prospects in 2014. We see
+20% wind industry growth in 2014 thanks to a strong US
market following extension of the Production tax credit
(PTC) in January. But we expect investor focus to remain
short-term on restructuring efforts in a weak 2013. Tangible
benefits of cost cutting in Q4 and Q1 should help drive the
recovery story for wind OEMs.
Valuation and changes. We raise price targets to reflect
rising volume growth for renewables. In solar we remain
OW(V) on SMA Solar (target EUR25 from EUR22) and
N(V) on Wacker (target EUR60 from EUR50). In wind we
remain N(V) on Vestas (DKK42 from DKK35) and Gamesa
(EUR2.00 from EUR1.65) and UW(V) on Nordex (EUR2.80
from EUR2.00).