German energy company has a made long-awaited offer for the minority shares in its embattled Siemens Gamesa Renewable Energy unit
Siemens Gamesa’s extreme mix of near-term challenges and bright long-term prospects makes it trickier than usual for investors to gauge whether the price is right. The valuation is a 27.7% premium to the company’s undisturbed share price on May 17, when Bloomberg reported deal talksand exceeds the six-month volume weighted average price.
But it has been a very tough six months. The deal values Siemens Gamesa at about 1.2 times forward sales, slightly less than the 1.4 times stock-market multiple of sector peer Vestas.
Siemens Gamesa shares peaked in January 2021 around €39 before being hit by a series of profit warnings and broader investor skepticism toward green-energy investments. Wind-turbine makers, like many manufacturing industries, have felt margin pressure from rising raw material costs and bottlenecks in supply chains and logistics. Siemens Gamesa has had specific troubles, too: Its onshore division has underperformed and is struggling with costly delays in the launch of its new 5.X turbine.
Looking further ahead, there are reasons for optimization. Siemens Energy recently replaced key Gamesa executives with its own people, who bring turnaround experience. Siemens Gamesa also has a sizable turbine service business that continues to deliver strong results.
Most promising of all, it was long the market leader in offshore wind turbines, although onshore leader Vestas edged it out last year. Offshore is a huge potential market as it opens up access to strong wind resources in many countries focused on decarbonizing power production.
Siemens Energy could afford to pay more. Full acceptance of the current offer would cost it €4 billion, funded with up to €2.6 billion in new debt and equity as well as €1.4 billion from its cash balances. It can maintain its investment-grade credit rating with a ratio of net debt to earnings before interest, taxes, depreciation and amortization of up to 1.5 times, says its chief financial officer.
The company had €1.7 billion in net cash last quarter and analysts are expecting Ebitda of €1.5 billion this year, according to FactSet, so there is room for a healthy increase in the offer.
However, just because Siemens Energy can raise its offer doesn’t mean it will. There is an inevitable conflict of interest between its roles as majority shareholder and bidder. Siemens Gamesa shares closed at €17.79 Monday, slightly below the bid price, so arbitragers don’t appear to be banking on a bump.
Some minority shareholders in Siemens Gamesa may believe its future prospects justify a higher offer, but in a minority buyout that might not mean too much.
Write to Rochelle Toplensky at [email protected]
Credit: www.Businesshala.com /