José Benito de Vega | Since the beginning of 2017 Siemens Gamesa (SGRE) shares have performed poorly, falling -20% compared to -1% for the Ibex 35. This is even clearer compared to the maximums of May 2017 since when they have fallen -40% (-11% Ibex 35).
Diverse factors such as the unfortunate communication of the first combined results, the profit warnings for India, the revision of inventories in the US or changes in the management team have weighed on the share price.
After the merger of Gamesa with Siemens Wind Power, Siemens is the main shareholder in the company with a holding of 59% while Iberdrola retains 8%. The remaining 33% constitutes the free float.
After some complicated quarters following the merger, during which Siemens Gamesa had to confront problems like the reduction in subsidies in the US, the price war with Vestas and other competitors, diverse profit warnings or changes in the management team, with the presentation of the strategic plan for 2017-2020 the company has gained visibility and eased the fears of the market. Siemens Gamesa will focus on improvements in efficiency, with cost savings of 2 billion euros to compensate the falls in average prices. Moreover, the growth expected in the sector will allow an increase in volume of sales, which will support the financial results.
The company expects an improvement in profitability, as a consequences of the measures contemplated in the plan, which will raise the EBIT margin by 8-10%. At the same time they will return to paying a dividend, fixing a pay out of 25% of net profits. We believe that in 2018 Siemens Gamesa’s published results will hit bottom and thereafter the operational synergies and efficiency savings will begin to be reflected in the numbers.
The company finds itself in a solid position to benefit from strong underlying trends in the sector. Given everything above, we believe that Siemens Gamesa is an attractive company from the point of view of fundamentals and valuation.