Vestas Earnings: Operating Losses Return to Surprise Investors

No-moat Vestas surprised investors by reporting an operating loss of EUR 68 million during its first quarter, reinforcing our view of the difficulties of investing in the sector. Its operating loss reverses a trend of two consecutive quarters of operating profits, a reminder that challenges faced by industry participants in the wind sector persist, despite positive news during second-half 2023. Management kept their full-year EBIT margin guidance unchanged at between 4% and 6%, implying seasonal volatility was the main reason for the loss rather than structural problems. However, the average selling price for its wind turbines appears to have peaked in fiscal 2023 and therefore its medium-term EBIT margin target of 10% may be ambitious given the competitive nature of turbine manufacturers. Shares are trading 5% lower and are at a slight discount to our DKK 197 fair value estimate, but we suggest investors wait for a greater margin of safety.