Vestas Wind Systems: Strong Demand Drives Recovery, but Risks Linger
Industry Overview
The wind power industry is experiencing rapid growth, with the International Energy Agency (IEA) forecasting significant capacity additions in the coming years. In 2023, 117 GW of new wind power capacity was installed globally, representing a 50% increase from the previous year.
Vestas’ Performance
Vestas Wind Systems, a Danish company, holds a 10% share in the global wind turbine market. In fiscal 2023, the company delivered 12.7 GW of wind capacity and reported revenue growth despite a slight decrease in delivery volume. Management prioritized value over volume, leading to an improvement in the EBIT margin.
Growth Drivers
The surge in demand for wind power plants is a key growth driver for Vestas. The Inflation Reduction Act in the US and the REPowerEU initiative in Europe are expected to further stimulate demand.
Financial Outlook
Management has provided guidance for fiscal 2024, forecasting all-time high revenue between €16B and €18B and an EBIT margin of 4-6%. The company’s service business, which offers maintenance and optimization services, is also expected to contribute to growth.
Risks
Despite the positive outlook, Vestas faces several risks. High interest rates can deter demand for wind farms and increase interest expenses. Increasing competition from Chinese companies, which benefit from lower production costs, poses another challenge.
Valuation
A discounted cash flow analysis suggests that Vestas’ stock is currently overvalued by approximately 24%. The company’s forward price-to-earnings ratio is 40x, while its EV/EBITDA ratio for fiscal 2024 is 13.94x.
Conclusion
Vestas Wind Systems is an attractive company with a strong market position and a promising growth outlook. However, the company faces several risks that investors should consider. Given the overvaluation indicated by the DCF analysis and the presence of endogenous and exogenous risks, a hold rating is assigned to Vestas.
