What’s behind the 300% rise in Siemens Energy’s share price this year? | Wilnesh News
Siemens Energy, which was spun off from its parent company during the Covid-19 pandemic, has experienced a roller coaster ride over the past 18 months – from near-death decline to dizzying growth of more than 310% this year. However, despite the rise, investors and analysts say the stock has further gains to come. Until late last year, the stock had been on a downward trend since going public in 2020. , producing larger wind turbines and pursuing larger projects. Investors back companies in the clean energy sector, and this Munich-based company is a perfect fit. Driven by regulatory, political and macroeconomic incentives, Siemens Energy began raising average selling prices for its turbines to boost profit margins, which were operating at a loss at the time. In August 2022, Chief Executive Christian Bruch even boasted on a conference call with analysts that margin expansion had helped boost orders to 340 for its subsidiary Gamesa, which makes wind turbines. billion euros ($36 billion). “Our expectation is that revenue will grow and margins will expand for everyone now,” said Philip Buller, an equity analyst at Berenberg. However, at that time, the company The first of many obstacles was encountered: inflation. While sales prices have risen steadily, manufacturing costs have risen even faster. To make matters worse, Siemens Energy joins industry peers in signing large contracts over the next few years at prices that are not tied to inflation. To this day, the company is faced with the dilemma of delivering these contracts at prices below production costs or face severe penalties. Then, when the entire industry slumped, Siemens Energy was hit again. In June 2023, the company withdrew its profit forecast due to a sharp increase in onshore wind turbine parts failure rates. Its Gamesa subsidiary is now expected to incur “significantly higher costs” than previously assumed. Gamesa will not only have to pay to fix problems with its existing onshore turbine fleet, but also compensate wind farm operators for any financial losses caused when the turbines stop generating electricity. A month ago, Siemens Energy made the situation worse when it completed the acquisition of the minority stake in Gamesa that it did not already hold for approximately 4 billion euros. In the following days, analysts from JPMorgan Chase, Jefferies, Citigroup, UBS and Santander downgraded the stock, and the stock price fell by more than 70% from the profit warning in June 2023 to the end of October. Ingo Speich, head of sustainability and corporate governance at Deka Investment, Siemens Energy’s 15th largest shareholder, said the Gamesa acquisition and subsequent bad news “the timing could have been better.” In short, investors are shrugging off value losses. “We are disappointed with management at this time,” Specch added. $1 sale could bring $10 billion in upside Gamesa’s problems mean the unit’s valuation ranges from zero to minus 12 billion euros, dragging down Siemens Energy’s overall valuation. Explaining Gamesa’s negative value, Berenberg’s Bühler said: “We were arguing that no matter how bad Gamesa performed, if they sold for $1, Siemens Energy’s stock valuation could go up by $10 billion. USD. Bühler estimates the unit is still valued at between minus 6 and minus 20 billion euros as it expects to continue losing money in the coming years as it repairs nearly 3,000 wind turbines around the world. , the silver lining is that maintenance costs could be lower in the future after Siemens Energy resolves the current issues. Analysts expect the share price to rise by 40% to 70 euros in the next 12 months. Opportunities in the downturn Amid Gamesta’s woes, others. Investors have a mixed view on Siemens Energy. Alec Cutler, a fund manager at Orbis Global Balanced Fund, a top 20 shareholder in Siemens Energy, believes the stock has fallen below its fair value and has increased his holdings. Cutler told CNBC Pro: “All of our analysis assumed from the beginning that Siemens Gamesa was worthless. Cutler added that whatever problems Gamesa had, it “would have to be very, very bad to offset the impact of one of the world’s largest gas turbine manufacturers and one of the world’s largest switch and transformer companies,” and Says the crisis is overblown Even as the stock sells off, Deka Investments’ Speich said the company is still worth more than its market value. Investment firm DekaFonds increased its stake in Siemens Energy as its shares fell. More than 65%. “At the time, we thought the market reaction was exaggerated. We looked at the data carefully and talked to the company,” Specch told CNBC. He added that Gamesa still has “significant problems, but they are under control. Management must now deliver on its promises. No more excuses.” Overlooked subsidiary While investors focus on loss-making Gamesa company, but Siemens Energy’s other divisions – Gas Services, Grid Technologies and Industrial Transformation – performed better than analysts and investors expected. One of the key drivers of growth is the sudden surge in global power demand, driven by the need to build new data centers for artificial intelligence applications. Additionally, the transition to low-carbon energy generation (wind or solar) is driving grid buildout much faster than previously expected. Gael de-Bray, European head of capital goods research at Deutsche Bank, said this means Siemens Energy’s grid technology unit is expected to become the largest moneymaker among its four divisions in 2025. The subsidiary’s order backlog currently stands at 33 billion euros, 43% more than last year. Demand is so strong that customers are even paying reservation fees now to take delivery of high-power transformers in 2030. “As the share of renewable energy continues to increase, installation capacity growth should be even stronger, driving significant investment in infrastructure, particularly grid capacity,” Debray said in a note to clients. “With data center expansion Related growing demand could provide additional upside of 10-15%. Analysts expect the stock to rise another 10% from current levels over the next 12 months. Another obvious external factor affecting the rise in Siemens Energy’s share price this year is the spin-off listing of its US competitor GE Vernova. Siemens Energy’s subsidiaries face global competitors. Vestas Wind Systems and Nordex compete with Gamesa; Switzerland’s ABB and South Korea’s HD Hyundai also produce grid and turbine technology. However, until GE Vernova first went public, no single company could compete with all of Siemens Energy’s subsidiaries. The listing provides analysts and investors with new data points to better assess the value of Siemens Energy. GE Vernova was spun off from General Electric Group and listed on the New York Stock Exchange in March, similar to how Siemens Energy was born from Siemens AG. Vernova also produces wind, gas, nuclear and hydro turbines as well as grid technology. The U.S. company’s shares have risen more than 160% this year, partly due to the clean energy transition and demand for artificial intelligence data centers. GEV 5Y Series “If the level of profit Vernova is seeing from demand is correct, then why would Siemens (not) be able to execute on it as well?” said Chris Smith, fund manager at Artisan Focus Fund, which owns GE Vernova and Siemens Energy. shares of the company. He believes that although the expected profit level in 2026 is similar to that of GE Vernova, the current valuation of the German company is at least 50% undervalued relative to GE Vernova. There is some “hesitancy” among investors to invest in European stocks. Siemens Energy’s share price has been volatile this year despite poor performance from its wind turbine unit. However, investors believe that as time goes by and Gamesa starts to make profits, the stock’s rating could move higher again. “Looking forward three to five years, Siemens Gamesa will definitely become their treasure. Isn’t that a good thing?” Cutler of Orbis Investment Company added.
