Already in Jan-13, Vestas had announced the amended and restructured debt facilities with an initial maturity of Jan-15.
- This addressed the market worries on solvency but no details were released as to the covenant levels, leaving a concern that the Company might still be held on the covenant mat by its banks.
4Q12 results came in slightly better than our 2H12 forecast (+11% at EBITDA level) with cash flow, while still negative, a little better with actual FY12 net debt at 1.9x Adjusted EBITDA against our conservative forecast of 2.8x.
- Both average pricing (due also to mix) and EBITDA margins improved quarter-on-quarter and year-on-year.
- FY13 outlook was taken down 10-20% from delivering 5GW to between 4-5GW with a balanced cash flow with upside possible from disposals.
- However the cost cutting has been accelerated (full year FYE run rate of €250m vs original 1Q12 target of €150m) and the target expanded to “> than €400m” by FYE13.
- Confirmation that the amended but unspecified covenants are expected to be passed at guidance throughout FY13, so the Company is in fact off the covenant mat for now.
- No news as to Mitsubishi Heavy negotiations but confirmation that development work continues (if delayed) on the offshore V164 8MW turbine and that it could be ready for serial production in 2015. This will important to build equity value and regain some growth.
- On our numbers, Vestas has picked up some market share benefiting from its competitively strong and wide onshore turbine offering of 2.6-3.0 MW for low, medium and higher speed wind applications.
- Vestas finally started to stress the value of the service backlog on what is globally the biggest installed fleet which is now worth €5.3 billion in addition to the €7.1 billion turbine order book. Given the recurring revenue and significantly higher margins from service this is a strong credit support.
We have run our forecasts based on capturing only 75% of BNEF’s Nov-12 onshore forecast installations and so allowing for share declines to allow Vestas to maintain pricing and payment terms. We have also been conservative and below guidance in terms of margin improvements (ie we are taking 60% of the cost saving for all of FY13 of the additional €150m cost saving guidance as FYE13).
- At worst this should allow the Company to show adequate free cash flow and deleveraging momentum by early to mid-14 to allow it to then address its early Jan-15 debt maturities. In practice we think the Company will look to extend maturities with a bond issue in 2H13. So we think a stand-alone recovery is possible but may still be a bit bumpy.
- Consequently, we still expect the more likely scenario to be a significant strategic investment as a partial or complete takeover in FY13-14. Vestas remains strategically a hugely valuable asset.
While the strong stock market reaction is probably exasperated by short covering, we continue to expect further share price recovery on improved operating performance as
well as M&A speculation. Moreover, we are also hopeful for some upside on both global turbine installation forecasts and Vestas share wins.