Vestas Wind Systems A/S, (VWDRY, $11.81): “Inflationary Winds Are Howling”
By:
Holden Patterson, AIM Student at Marquette University
Summary:
- Vestas Wind Systems A/S (ADR: VWDRY)
is a Danish manufacturer, provider, installer, and servicer of onshore and
offshore wind turbines. They derive revenue from two segments: Power Solutions
(86%) and Service (14%). Their Power Solutions segment consists of the
production and sale of their line of various wind turbines. This segment
additionally encompasses the installation and development of wind power plants
to be used for major alternative energy solutions. The Service segment consists
of the sale of service contracts as well as the maintenance and inspections on
their turbines and energy systems worldwide. Vestas Wind Systems A/S was
founded in 1945, issued an initial public offering in 1998, and is
headquartered in Aarhus N, Denmark.
- The stock has depreciated 9.97% since being added to the portfolio. A large portion of this decline is tied to the stock falling 12.12% over the past week amidst inflation and energy news around the globe. The stock also saw a 5:1 stock split on May 7th.
- Cost inflation in the industry sector has contributed to the recent decline in their stock price. Rising costs for the commodities needed for turbine production tied to other inflationary concerns have led to investor fears heightening.
- June 2021 LTM Sales were recorded as $17.3 Billion, which is $430 million and 2.4% greater than 2020’s full year figure. Additionally, June 2021 LTM net income and EBIT is 18.9% greater than that of 2020 and EBIT increased 9.74% from 2020. We can take this slightly as their ability to recover from the pandemic and start to generate revenue from some of their major offshore projects.
- At the end of the day if a longer-term mindset is held for the stock, many of the key drivers such as policy tailwinds, renewable favorability, and an infrastructure build out are still in tack and make a case for a valuable future ahead.
Key
points:
VWDRY was added to the portfolio in April
of 2021 at around $65.71 per share. On May 7th a 5:1 stock split
occurred, so therefore the adjusted price on the date of purchase is around $13.14.
The stock has depreciated 9.97% since being added to the portfolio. From April
to the end of September, the stock had been stagnant to moderately growing
around 1-2%. From September 30th to October 5th the stock fell
12.12%. A large part of this was due to the affect of cost inflation in energy
prices which has led to uncertainty for the near-future outlook for wind. Investor
fears have heightened amongst uncertainty in the US regarding budget decisions
and inflationary risk. Rising US and worldwide inflation have contributed to
oil prices skyrocketing and the risk that wind costs will rise in the near
future. This is affecting the sustainable energy and wind industry overall, and
specifically has been a major factor in Vestas’ recent decline. Inflation and
how key plays such as the US handle inflationary policy will a huge role in the
recovery of the sustainability segment. If inflation continues to get out of
control, costs for turbine product will go up while costs for more traditional
energy sources such as gas have remained flat while prices are soar. Prices for
commodities that are vital in turbine production such as steel and copper have been
experiencing massive inflation as well. Additionally, Vestas lowered their
profit outlook in their most recent quarterly results. One of their major
competitors, Siemens Gamesa (SIEGY), made a statement that higher raw material
costs is becoming a factor in their own lowered earnings projections. These
risks have made wind energy companies like Vestas less appealing to the
short-term investor, but the market overall is still projected to grow like
crazy over the coming decade and beyond. Some on the street believe this could
be a good time for long term investors to get in on a company like Vestas with
a hopefully inflation bounce back, policy tailwinds supporting renewable
prosperity, and infrastructure rollout paying off.
What
has the stock done lately?
Since being added to the portfolio the
stock has fallen 9.97%. As I mentioned above, the stock was positively
performing up until the start of October, but over the past week the stock has
fallen 12.12%. This decline did come alongside news of an energy crisis
emerging in parts or Europe and the UK, where prices for natural gas have grown
drastically, but the main theme still being macroeconomic inflationary risk.
This has been one of the larger drops the stock has seen over the past couple
years and has definitely frightened many investors.
1 Month Stock Chart
Source: FactSet
Past
Year Performance:
Over the past year (October 2020 - October
2021), VWDRY has declined -0.08%. The 52-week high being $17.72 and the low
being $10.66. On May 7th a 5:1 stock split occurred, so therefore
the adjusted price on the date of purchase is around $13.14. Aside from the
past weeks decline, the stock has experienced two major spikes and falls. The
first being a 66% gain from 10/28/2020 to 1/07/2021, which did happen to follow
their 2020 Q3 earnings release at the start of November. The second being a
31.95% gain from $11.11 on 3/8/2021 to $14.66 on 4/27/2021. This was slightly
trailing the 2020 Q4 earnings release in February of 2021. This shows the
potential for massive recovery’s they have experienced over the past year.
My
Takeaway:
VWDRY should continue to stay in the
AIM International Fund as although they are facings some adversity currently
stemming from more macro inflationary issues, there is still a lot of potential
for the key drivers to play out. The first, and biggest, upside factor is the
projected growth in the wind market continuing to stay very strong. There is a
lot of growth opportunities for both onshore and offshore wind, while
efficiency is starting to improve. We are also still in a period where green
policy is favoring renewables and creating a strong environment for Vestas to
grow. I believe in the short term this is most definitely a hold to regain
position and see how these risks play out. We do project upside in the future
to justify a longer hold, but ultimately this decision should be made once
their offshore infrastructure is rolled out over the next year and we can get a
solid picture for how their sales benefit from this fact.
