Vestas reported good first-quarter results with revenue growth of 18% compared with the first quarter of 2014 and adjusted EBIT margin of 5.2%. Approximately EUR 150 million of the revenue increase was due to translation effects, mainly from the appreciation of the U.S. dollar. Adjusted EBIT in the quarter almost doubled, driven mainly by higher volume, favorable project mix margins, and translation impact.
In our note from February, following full-year 2014 results, we indicated that we viewed management's guidance for 2015 as very conservative, and very likely to be raised during the year. As expected, Vestas upgraded the 2015 guidance on revenue from minimum EUR 6.5 billion to at least EUR 7.5 billion, and EBIT margin guidance before special items from minimum 7% to at least 8.5%. We expect revenue to rise from EUR 6.9 billion in 2014 to EUR 7.2 billion in 2015. We share management's view that the 2014 EBIT level of 10.2% is not sustainable as parts of cost control are not repeatable. However, Vestas will benefit from the increasing attribution of high-margin service revenue (a 21% EBIT margin in the first quarter), stable pricing of order intake, and operational leverage due to higher U.S. extended PTC-related sales activity, so we expect margins above 9% in 2015. We maintain our no-moat rating and fair value estimate of DKK 272 per share
Vestas' order intake in first-quarter 2015 was very strong, driven mainly by continued high market activity in the U.S. and Asia-Pacific. The value of the order backlog was EUR 7.5 billion at the end of March 2015, compared with EUR 6.9 billion at the end of March 2014. Another positive highlight of this quarter, in our view, was the strong 13% increase in service revenue compared with the first quarter of 2014. We like the strong development of Vestas' services business as this helps to offset revenue and margin swings in the company's equipment offerings.
Vestas targets a capital structure, expressed as net debt to EBITDA multiple below 1. The current level of negative 1.5 times at year-end 2014 opens the door for acquisitions or share buybacks in 2015.
Fair Value Estimate
- Vestas Wind Systems A/S VWS|DK
- Morningstar Rating: 3
- Market Price: 325.90 DKK
- Fair Value: 272.00 DKK
- P/FV: 1.20
- Economic Moat: None
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