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European Wind Power
SECTOR REVIEW
Still promising
Reviewing the key wind stocks: Following the boom and bust of what many have
called a wind power ‘bubble’, we examine the key issues driving the outlook for wind
power stocks. We have also analysed these stocks by using the Credit Suisse
HOLT® methodology. Wind power stocks are increasingly separating into a distinct
industry sector and investors now have a wider range of larger, focused investment
vehicles to play one of the most dynamic areas in the energy space. In this report, we
initiate coverage on EDF Energies Nouvelles (Neutral, TP €32) and EDP Renováveis
(Outperform, TP €8.0), completing our coverage of the key wind power stocks. We
also update our views and analyses of Iberdrola Renovables (Neutral, TP €3.30),
Acciona (Outperform, TP €116 from €112), Vestas (Underperform, TP DKr 200) and
Gamesa (Neutral, TP €12.10).
Investment ideas—we like the developers: Our investment preference is clearly
biased towards the developers, increasingly large and dominant, as opposed to
manufacturers, which we believe are seeing their bargaining power structurally
weakening. Our top pick is EDPR, a quality play with substantial upside potential at
nearly 40%. We continue to believe that IBR is the highest-quality investment
proposition among developers, but this has largely been priced in. Our least
preferred stock is Vestas, with significant potential negative catalysts ahead and
valuation downside potential. We prefer Gamesa to Vestas on valuation grounds
and its stronger long-term ties with key wind energy developers.
We are still positive on the sector, but less ambitious: Only a year ago investors
were willing to pay high premiums for the growth potential of wind energy stocks.
Valuations since then have declined significantly, as these capex-driven growth
stories have been particularly affected by the credit crunch. Valuations have
recovered from the severe discounts seen at the height of the market turmoil, but do
not reflect much future growth. This notwithstanding, we believe that wind power
generation is one of the most attractive avenues for value-creating growth in the
utility world and that valuations that ignore the growth potential are not sustainable.
However, we do not expect investors to be willing to pay for more than a few years
of growth in the current market conditions.
Signs of hope on financing and the US market: The sector is far from immune to
the global financial and economic crises, as shown by an average of 30–35% capex
cuts in 2009. Nevertheless, our analysis of financing issues affecting wind power
growth suggests that the reduction in investment plans may not be permanent for
most players and that factors such as the improvement in bond markets and the
introduction of the cash grant system in the US could see some recovery in 2010.
The US market remains a key opportunity for all involved and the Obama
Administration appears to be showing clear, tangible commitment to the industry.
This is evidenced in the strong early actions approved as part of the Stimulus Plan,
with the three-year PTC extension and the introduction of the cash grant, (both
major landmarks), and the ambitious energy-related legislation pipeline.
Table of contents
Summary stock views 3
European wind power 4
Still promising 10
What now? Financing markets 13
What now? The US market outlook 20
What now? The US grant system 25
What now? The turbine market 29
What now? Valuation multiples 32
EDP Renovaveis (EDPR.LS) 37
EDP Renováveis 38
Valuation 41
Company financials 47
Iberdrola Renovables (IBR.MC) 55
Summary of estimate changes 56
Valuation stays at €3.30 per share 57
EDF Energies Nouvelles (EEN.PA) 61
Investment case 62
Divisional overview 64
A few points on solar 67
Financials 70
Valuation 77
EDF EN: Appendix 79
Acciona SA (ANA.MC) 83
Financials 84
Gamesa (GAM.MC) 89
Vestas (VWS.CO) 91
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