Vestas' Shares Bounce on Potential U.S. Bill Aimed at Reducing Carbon Emissions; FVE Maintained

Shares of no-moat Vestas are up 16% on the news of a possible bill that would result in $369 billion being invested into energy security and climate change. Wind turbine manufacturers stand to be beneficiaries through greater demand for their equipment, which has seen volatile demand in recent quarters. Uncertainty surrounding the extension of production tax credits of wind projects in the U.S., Vestas’s largest geographic market, has led to the deferral of wind energy projects and was a key reason behind the group’s decline in orders in 2021. However, even with regulatory clarity and new investment, we remain concerned about the weak industry economics among the wind turbine manufacturers that have led Vestas, Siemens Gamesa, and General Electric Renewable Energy to all guide toward making operating losses in 2022. Our no-moat rating for the wind turbine manufacturers is underpinned by intense rivalry among competitors and product innovations that are not groundbreaking enough to avoid replication, which have led to aggressive pricing competition as manufacturers jostle to gain market share in the hope of achieving perceived scale benefits and long-term service contracts in the future. We maintain Vestas’ DKK 176 fair value estimate. Shares in Siemens Gamesa are unchanged due to its impeding takeover by Siemens Energy.