Summary
Gamesa's turnaround strategy is paying off in better margins, lower debt, and better capital efficiency.
Order growth in 2013 covers more than half of management's guidance for 2014.
A joint venture with Areva could allow the company to become a player in offshore turbines.
... the company continues to execute on its turnaround plan. That plan has led to high single-digit order growth for 2013 and a return to double-digit growth in the fourth quarter, and the stock has continued to recover with the shares up about 250% over the past year and another 60% since September....
What has happened, though, is that the company has stuck to its plans to rationalize its product development (consolidating around a smaller number of shared designs), take costs out of the manufacturing process, and get smarter about it capital demands.
It was encouraging to see the company show improved results for the fourth quarter of 2013. Sales were lower than expected in the fourth quarter (though still up 14%), but the company did exceed its EBIT margin guidance for the full year (5.5% versus the high end of its range) and the fourth quarter. The company also lowered its working capital more than expected and the net debt position shrank more than expected.
...Gamesa certainly owes some of its decline in overall market share to its shrinking Chinese and U.S. businesses, as the company has slipped to the sixth-largest turbine company by recent installations (though it remains third in total installed base, behind Vestas and GE). Some of the decline can also be attributed to the company no longer building and operating wind farms (Gamesa Energia), as these installations accounted for about 15% of volume from 2008 to 2012.
In the place of those declines, Gamesa has been picking up business in Latin America and India. Latin America has grown to nearly 50% of volume, and Gamesa is a share leader in Brazil due in no small part to its local manufacturing presence. The same is true in India, which has doubled as a percentage of the company's volume over the last few years.
With this migration, Gamesa finds itself dealing more with IPPs instead of public utilities. That does create some concerns for me with the stability of the business, and IPPs have seen difficulties in accessing credit/liquidity in the past. Likewise, the state of many Latin American economies has not been so wonderful of late and that slowdown is a risk factor. That said, the company just announced (March 4, 2014), a joint venture with Santander to develop 500MW of wind farms in Oaxaca, Mexico.
........Discounting those cash flows back, I believe Gamesa is worth around $2.40 per ADR today. There is definitely scope for the company to outperform my revenue expectations if the offshore JV is a success and/or if the company can regain more of its global market share than I presently expect. Though Gamesa isn't as cheap as it once was, it still looks priced to outperform the market by a worthwhile degree.
seekingalpha.com/article/...ontinues-to-run-on-its-second-wind