Vestas Earnings: Return to Profitability Supported by One-Off Disposal; Raising Our Fair Value

No-moat Vestas VWS reported EBIT of EUR 40 million during the first quarter, its first profitable quarter since fourth-quarter 2021. While the EUR 147 million sale of its converter business positively distorted results, underlying performance also appears to be improving as higher pricing and lower provisions will support an improvement in its profitability from the lows of 2022. We raise our fair value estimate to DKK 197 per share as its short-term profitability outlook has improved, driven by the factors above. Despite an improved outlook, our preferred way for investors to get exposure to the wind energy theme remains wind energy utilities and producers of wind energy. We view shares as fairly valued.

Order intake declined to EUR 2.9 billion from EUR 3 billion year over year as an increase in turbine megawatts ordered was offset by lower average selling prices, which was due to mix effects rather than competitive pressures. A lengthy and bureaucratic permit process, as well as regulatory uncertainty over power-purchase agreements, remains a challenge to the buildout of renewable energy projects. The benefits of the Inflation Reduction Act will provide a favorable tailwind in future, but have not yet resulted in a firm order intake. Revenue grew 14% during the first quarter, supported by higher selling prices on turbine deliveries as well as 29% growth in services. Despite strong revenue performance during the first quarter management kept its full-year revenue guidance between EUR 14 billion and EUR 15.5 billion unchanged.