Dear Followers&Copiers, In this post I run a fundamental update for $VWS.CO, which “is a Denmark-based company active within the wind power industry. The Company operates through two segments, Project and Service. The Project segment is responsible for sale of wind power plants and wind turbines, among others. The Service segment contains provision of services related to the Company’s offer, as well as sale of spare parts and other activities. Vestas Wind System’s product line comprises 2 Megawatt (MW) and 3MW energy capture platforms equipped with ice, smoke and shadow detection systems. Its services range consists of data-driven consultancy services, fleet optimization, blade maintenance and inspection, power generator repairs and gearbox exchange, among others.” (CNBC)
Another Financial Year (FY) has passed and it’s time to update the equity portfolio of the Global Leaders Portfolio (GLP) in terms of the SIAScore we use. $VWS.CO is one of our portfolio names. Let’s quickly remind what SIAScore is and how the process :
S1: growing sector 1pts/0pts,
S2: incumbent or prospective global leader 1pts/0pts,
S3: growing or stable wide margins (40%+ gross; 3yr avg) 2pts/0pts,
S4: Net Debt/EBITDA <1.5 (last 3 ended FYs) 2pts/0pts,
S5: above-average cash flows (FCF/MktCap (last 3 ended FYs) > S&P500 Dividend Yield or US 10yr Treasry Yield (higher of the values)) 2pts/0pts;
MAX TOTAL SCORE: 8pts/MIN TOTAL SCORE: 0pts/MIN SCORE TO QUALIFY: 4pts
Let’s analyse each step now…
S1: 1 point
$VWS.CO operates in a growing sector with brigth future ahead – clean energy. Moreover, the current democratic swing in US (and possibly other countries to follow suit) post the election of Joe Biden for US president, additinally supports the clean energy growht story.
S2: 1 points The company is among the leaders in its sector. Denmark (the homeland of Vestas) is known as the world leader of clean energy solutions.
S3: 0 point
2018——2019——-2020——-AVG——-last yr AVG
16,0%….. 15,00%…….10,4%…….13,8%…….17,0%
Gross Profit Margin (GPM) is below our minimum 40% treshold. Moreover the avg GPM deteriorates, which indicates growing competition int he sector and growing problems of keeping assumed margin on $VWS.CO‘s products. This trend is most possibly going to continue, unless they come up with some brand new technology or improvement that could add additional margin to their mix. This point is definitely to be watched closely. Also Vestas has more old-economy solutions, it’s been offering for years now, which naturally have lower margins.
S4: 2 points
2018——2019——-2020——-AVG——-last yr AVG
-2,1……….-1,6……..-1,32………-1,67………..-1,9
$VWS.CO‘s net cash position is very safe, but the 3yr avg deteriorated somewhat form last year. Not a sign for worries, given the company’s liquidity levels.
S5: 2 points
2018——2019——-2020——-AVG——-last yr AVG
5,0%……..2,0%……..0,9%…….2,63%……….6,33%
The avg 3yr FCF yield is way above the minimum treshold level, which is currently at higher of the two: the $SPX500 dividend yield (1,53%) and the 10Y treasury note yield (1,57%). Hence the stock is still a good alternative to other stocks, as well as to the risk-free assets, even after such a big move higher in the yields lately. But, the worseing of its FCF yield is very notable, and comes mainly fomr the massive increase in the stock’s price in 2020. The stock is up way over twofold over the last 52 weeks (almost threefold at its peak start 2021).
Aggregate score for $VWS.CO: 7 points (no change YoY).
Conclusion: Fundamentals of $VWS.CO are sound. GPM must be watched. Valuation-wise it trades at an pretty lofty 46x TTM PE, with the avg for the $SPX500 Shiller CAPE at similar level of 36,6x. Additionally its 1yr forward PE stands at 39x, which is also relatively challenging. Current valuation is in my view the biggest risk in the mid-term, in the long term the stock’s investment story will depend on the growth rate. Technically the stock is appx 16% off its ATH around EUR210 it’s been correcting it’s 2020 massive rally of late – I think it’s healthy. I keep $VWS.CO in my portfolio as long-term holding. The clean energy play is ON, an Vestas is well positioned to capitalize on it.
Best regards, GlobalAlphaS
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