Yesterday, Siemens Gamesa presented its strategic plan to 2020, baptised L3AD2020. The company acknowledged that the last nine months have been complicated, both because of the merger process as well as the situation in the market. But it believes it has crossed a turning point. The new strategy is centred on cost savings of 2 billion euros which will allow it recover margins (EBIT/sales) to around the 8/10% level. According to Bankinter’s analysts, the savings is the fruit of 400 million euros of synergies, as well as improvements in production and technology.
The rationalisation of the product offer (one technolgy per segment) allows them to advance in standardisation (fewer pieces, less inventory). In fact, 65% of the estimated savings come from “product accessibility,” especially in the onshore segment.
Furthermore, the merger has allowed them to gain scale and that creates volumen which, in turn, gives them more power when negotiating with suppliers.
The shareholder remuneration policy has not changed from the one Gamesa had (25% payout). As far as incentives for management go, they seem to be balanced. There is emphasis on short-term objectives linked to growth with an EBITDA target, as well as on long-term goals, depending on EPS, shareholder remuneration and performance vs competitors.
In short, Bankinter’s first impression is positive.
The company has finally clarified its strategy, giving an idea that the integration is progressing (synergies will be obtained a year ahead of time) and it seems to be adapting to a changing environment. Whatsmore, it hopes to grow both in terms of MW and in euros.
That said, they also point that the whole strategy centres around cost savings.
In the end margins do not improve in comparison with the past. This gives us an idea of the huge impact the change in the sector model is having, with strong downward pressure on prices.
In addition, the company has not dared to give any concrete details on the profit and loss account (EBIT or Net Attributable Profit). So, it seems more “of a defensive strategy.”
Link Securities’ analysts are also not completely convinced by Siemens Gamesa’s new strategic plan.
“After the presentation of this business plan, we will need to make certain adjustments to our forecasts. But we don’t see a catalyst which could push up our Price Target for the stock, currently at 2,28 euros per share.”
Société Générale analysts are going against the flow, however, reiterating their Buy recommendation with a Price Target of 16 euros per share. They flag that the market will be more convinced as there is visibility on cost savings, since the company still has an attractive valuation (10x 2019e EV/Ebitda).
Our conviction has been strengthened in the wake of the new strategy, which appears to be backed by detailed plans of action and an experienced management team with incentives, and one which transmits confidence.”
